World Investment Report 2021


Chapter 2 – Regional trends

FDI in Africa fell by 16 per cent

FDI flows to Africa declined by 16 per cent in 2020, to $40 billion – a level last seen 15 years ago – as the pandemic continued to have a persistent and multifaceted negative impact on cross-border investment globally and regionally. Greenfield project announcements, key to industrialization prospects in the region, dropped by 62 per cent to $29 billion, while international project finance plummeted by 74 per cent to $32 billion. Cross-border M&As fell by 45 per cent to $3.2 billion. The FDI downturn was most severe in resource dependent economies because of both low prices of and dampened demand for energy commodities.

FDI inflows to North Africa contracted by 25 per cent to $10 billion, down from $14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, although inflows fell by 35 per cent to $5.9 billion in 2020. Inflows to sub-Saharan Africa decreased by 12 per cent to $30 billion. Despite a slight increase in inflows to Nigeria from $2.3 billion in 2019 to $2.4 billion, FDI to West Africa decreased by 18 per cent to $9.8 billion in 2020.

Central Africa was the only region in Africa to register stable FDI in 2020, with inflows of $9.2 billion, as compared with $8.9 billion in 2019. Increasing inflows in the Republic of Congo (by 19 per cent to $4 billion) helped prevent a decline.

FDI to East Africa dropped to $6.5 billion, a 16 per cent decline from 2019. Ethiopia, which accounts for more than one third of foreign investment to East Africa, registered a 6 per cent reduction in inflows to $2.4 billion. FDI to Southern Africa decreased by 16 per cent to $4.3 billion even as the repatriation of capital by MNEs in Angola slowed down. Mozambique and South Africa accounted for most inflows in Southern Africa.

Developing Asia accounts for half of global FDI

FDI inflows to developing Asia as a whole were resilient, rising by 4 per cent to $535 billion in 2020; however, excluding sizeable conduit flows to Hong Kong, China, flows to the region were down 6 per cent. Inflows in China actually increased, by 6 per cent, to $149 billion. South-East Asia saw a 25 per cent decline, with its reliance on GVC-intensive FDI an important factor. FDI flows to India increased, driven in part by M&A activity. Elsewhere in the region, FDI shrank. In economies where FDI is concentrated in tourism or manufacturing, contractions were particularly severe. M&A activity was robust across the region, growing 39 per cent to $73 billion – particularly in technology, financial services and consumer goods. In contrast, the value of announced greenfield investments contracted by 36 per cent, to $170 billion, and the number of international project finance deals stagnated.

Flows to East Asia rose 21 per cent to $292 billion, partly due to corporate reconfigurations and transactions by MNEs headquartered in Hong Kong, China. FDI growth in China continued in 2020, with an increase of 6 per cent to $149 billion, reflecting the country’s success in containing the pandemic and its rapid GDP recovery. The growth was driven by technology-related industries, e-commerce and research and development. South-East Asia, an engine of global FDI growth for the past decade, saw FDI contract by 25 per cent to $136 billion. The largest recipients – Singapore, Indonesia and Viet Nam – all recorded declines. FDI to Singapore fell by 21 per cent to $91 billion, to Indonesia by 22 per cent to $19 billion, and to Viet Nam by 2 per cent to $16 billion.

Investment in South Asia rose by 20 per cent to $71 billion, driven mainly by a 27 per cent rise in FDI in India to $64 billion. Robust investment through acquisitions in ICT and construction bolstered FDI inflows. Total cross-border M&As surged by 86 per cent to $28 billion, with major deals involving ICT, health, infrastructure and energy sectors. FDI fell in South Asian economies that rely to a significant extent on export-oriented garment manufacturing. Inflows in Bangladesh and Sri Lanka contracted by 11 per cent and 43 per cent, respectively.

FDI flows in West Asia increased by 9 per cent to $37 billion in 2020, driven by an increase in M&A values (60 per cent to $21 billion) in natural resource-related projects. In contrast, greenfield investment projects were substantially curtailed, because of both the impact of the pandemic and low prices for energy and commodities. FDI in the United Arab Emirates rose by 11 per cent to $20 billion, driven by acquisitions in the energy sector. Inflows in Turkey decreased by 15 per cent to $7.9 billion. Investments in Saudi Arabia remained robust, increasing by 20 per cent to $5.5 billion.

FDI prospects for the region are more positive than those for other developing regions, owing to resilient intraregional value chains and stronger economic growth prospects. Signs of trade and industrial production recovering in the second half of 2020 provide a strong foundation for FDI growth in 2021. Nonetheless, in smaller economies oriented towards services and labour intensive industries, particularly hospitality, tourism and garments, FDI could remain weak in 2021.

FDI in Latin America and the Caribbean plummeted

FDI flows to Latin America and the Caribbean fell by 45 per cent to $88 billion, a value only slightly above the one registered in the wake of the global financial crisis in 2009. Many economies on the continent, among the worst affected by the pandemic, are dependent on investment in natural resources and tourism, both of which collapsed, leading to many economies registering record low inflows. International investment in SDG-relevant sectors suffered important setbacks, especially in spending on energy, telecommunication and transport infrastructure.

In South America, FDI more than halved to $52 billion. In Brazil, flows plunged by 62 per cent to $25 billion – the lowest level in two decades, drained by vanishing investments in oil and gas extraction, energy provision and financial services. FDI flows to Chile dropped by 33 per cent to $8.4 billion, benefitting from a quick recovery in mineral prices in the second half of the year. In Peru, flows crumbled to $982 million, driven by one of the worst economic slumps in the world, and increased political instability. In Colombia, FDI tumbled by 46 per cent to $7.7 billion following falling oil prices. Argentina’s FDI inflows, already on a downward trajectory since 2018, plummeted by 38 per cent to $4.1 billion in 2020.

In Central America, FDI inflows declined by 24 per cent to $33 billion, partly shored up by reinvested earnings in Mexico. In Costa Rica, a sudden pause in investment in special economic zones (SEZs) was responsible for most of the 38 per cent decline in FDI inflows to $1.7 billion. As international trade in the region halted, flows to Panama shrank 86 per cent to less than $1 billion.

In the Caribbean, excluding offshore financial centres, flows declined by 36 per cent following the collapse in tourism and the halt in investment in the travel and leisure industry. The contraction was mostly due to lower FDI ($2.6 billion) in the Dominican Republic, the largest recipient in the subregion.

Investment flows to and from the region are expected to remain stagnant in 2021. The pace of recovery of inflows will vary across countries and industries, with foreign investors set to target clean energy and the minerals critical for that industry, pushed by a worldwide drive towards a sustainable recovery. Other industries showing early signs of a rebound include information and communication, electronics and medical device manufacturing. Yet the region’s lower growth projections compared with other developing regions, and the political and social instability in some countries, pose a risk to those prospects.

FDI flows to transition economies continued to slide

FDI flows to economies in transition fell by 58 per cent to just $24 billion, the steepest decline of all regions outside Europe. Greenfield project announcements fell at the same rate. The fall was less severe in South-East Europe, at 14 per cent, than in the Commonwealth of Independent States (CIS), where a significant part of investment is linked to extractive industries. Only three transition economies recorded higher FDI in 2020 than in 2019. The pandemic exacerbated preexisting problems and economic vulnerabilities, such as significant reliance on natural-resource-based investment (among some large CIS countries) or on GVCs (in South-East Europe). The largest recipients (the Russian Federation, Kazakhstan, Serbia, Uzbekistan and Belarus, in that order) accounted for 83 per cent of the regional total. The Russian Federation, accounting for more than 40 per cent of inflows, experienced a decline of 70 per cent in inbound FDI, to $10 billion.

A recovery in inflows is not expected to start before 2022. Despite recovery efforts, a return to pre-pandemic levels of inward FDI is unlikely, owing to slow economic growth affecting market-seeking FDI, the constraints of the pandemic limiting diversification options, economic sanctions and geopolitical instability in parts of the region. The value of greenfield project announcements fell by 58 per cent to $20 billion in 2020, the lowest level on record, and the number of announced cross-border project finance deals almost halved.

FDI flows to developed economies fell sharply

FDI flows to developed economies fell by 58 per cent to $312 billion – a level last seen in 2003. The decline was inflated by strong fluctuations in conduit and intrafirm financial flows, and by corporate reconfigurations. Among the components of FDI flows, new equity investments were curtailed, as reflected in the decline in cross-border M&As, the largest form of inflows to the group. The value of those sales fell by 11 per cent to $379 billion. The value of announced greenfield projects in the group declined by 16 per cent. In contrast, international project finance deals continued to target developed economies, increasing 8 per cent.

FDI flows to Europe fell by 80 per cent to $73 billion. The fall was magnified by large swings in conduit flows in countries such as the Netherlands and Switzerland. However, inflows also fell in large European economies such as the United Kingdom, France and Germany. FDI flows to North America declined by 42 per cent to $180 billion. Inflows to the United States decreased by 40 per cent to $156 billion. Lower corporate profits had a direct impact on reinvested earnings, which fell to $71 billion – a 44 per cent decrease from 2019.

Prospects are moderately positive, with growth of up to 20 per cent expected, mainly due to strong cross-border M&A activity, improved macroeconomic conditions, well-advanced vaccination programmes and large-scale public investment support. FDI is projected to increase by 15 to 20 per cent in Europe following the collapse in 2020 (from a baseline excluding conduit flows). FDI in North America is also projected to increase by about 15 per cent.

FDI fragility in structurally weak and vulnerable economies

Under the strains of the coronavirus pandemic, which amplified the fragilities of their economies, FDI to the 83 structurally weak, vulnerable and small economies declined by 15 per cent to $35 billion, representing only 3.5 per cent of the global total.

Aggregate FDI inflows to the 46 least developed countries (LDCs) remained practically unchanged at $24 billion, an increase of 1 per cent. However, the majority of countries registered lower FDI. Inflows to the 33 African LDCs increased by 7 per cent to $14 billion, accounting for more than 60 per cent of the group total. In the nine Asian LDCs, inflows declined by 6 per cent to $9.2 billion, or nearly 40 per cent of the group total.

FDI inflows are forecast to remain sluggish in 2021 and 2022, as LDCs struggle to cope with the shock of the crisis. The number of greenfield project announcements decreased, as did the number of international project finance deals. These declines affected sectors relevant for the SDGs, which is of concern for plans to help the countries graduate from LDC status.

The pandemic caused major disruptions in the economic activities of the 32 landlocked developing countries (LLDCs) and severely hit their FDI inflows, which contracted by 31 per cent to $15 billion. The drop, to the lowest level of aggregate FDI since 2007, affected practically all economies in the group, with the notable exceptions of Kazakhstan, the Lao People’s Democratic Republic and Paraguay. The share of the group in global FDI flows remained stable, though marginal, at 1.5 per cent.

International transportation constraints and dependence on neighbouring countries’ infrastructure will continue to affect FDI in LLDCs. Although the measures adopted in the early stages of the pandemic are gradually being lifted or eased, the reorganization of international production and value chains could remain a challenge for LLDCs as investors seek more cost-effective and resilient locations for their new operations. Rescue and recovery packages that would accelerate economic growth and new investment remain limited by resource constraints.

FDI in the small island developing States (SIDS) was down by 40 per cent last year, to $2.6 billion. The scale of the contraction, which affected all SIDS regions without exception, highlights the multiple challenges that these countries are facing during the pandemic. Vulnerabilities include the concentration of FDI in a handful of activities (such as tourism and natural resources, both hard hit by the pandemic) and poor connectivity with the world economy. FDI flows to the SIDS are expected to remain stagnant in the short to medium term.