After a big drop last year caused by the COVID-19 pandemic, global foreign direct investment (FDI) reached an estimated $852 billion in the first half of 2021, showing a stronger than expected rebound. That is according to the latest Investment Trends Monitor, released this Tuesday by the United Nations Conference on Trade and Development (UNCTAD). It shows the increase in the first two quarters in FDI, recovered more than 70 percent of the losses stemming from the COVID-19 crisis in 2020. For the UNCTAD's director of investment and enterprise, James Zhan, the good news "masks the growing divergence in FDI flows between developed and developing economies, as well as the lag in a broad-based recovery of the greenfield investment in productive capacity." Zhan also warns that "uncertainties remain abundant". The duration of the health crisis, the pace of vaccinations, especially in developing countries, and the speed of implementation of infrastructure stimulus, remain important factors of uncertainty. Other important risk factors are labor and supply chain bottlenecks, rising energy prices and inflationary pressures. Despite these challenges, the global outlook for the full year has improved from earlier projections. The growth in the next few months should be more muted than the in the first half of the year, but it should still take FDI flows to beyond pre-pandemic levels Between January and June, developed economies saw the biggest rise, with FDI reaching an estimated $424 billion, more than three times the exceptionally low level in 2020. In Europe, several large economies saw sizeable increases, on average remaining only 5 percent below pre-pandemic quarterly levels. Inflows in the United States were up by 90 percent, driven by a surge in cross-border mergers and acquisitions. FDI flows in developing economies also increased significantly, totalling $427 billion in the first half of the year. There was a growth acceleration in east and southeast Asia (25 percent), a recovery to near pre-pandemic levels in Central and South America, and upticks in several other regional economies across Africa and West and Central Asia. Of the total recovery increase, 75 percent was recorded in developed economies. High-income countries more than doubled quarterly FDI inflows from rock bottom 2020 levels, middle-income economies saw a 30 percent increase, and low-income economies a further 9 percent decline. Growing investor confidence is most apparent in infrastructure, boosted by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes. International project finance deals were up 32 percent in number, and 74 percent in value terms. Sizeable increases happened in most high-income regions and in Asia and South America. In contrast, UNCTAD says investor confidence in industry and value chains remains shaky. Greenfield investment project announcements continued their downward path, decreasing 13 percent in number and 11 percent in value until the end of September. After suffering double-digit declines across almost all sectors, the recovery in areas relevant to Sustainable Development Goals (SDGs) in developing countries remains fragile. The combined value of announced greenfield investments and project finance deals rose by 60 percent, but mostly because of a small number of very large deals in the power sector. International project finance in renewable energy and utilities continues to be the strongest growth sector. The investment in projects relevant to the SDGs in least developed countries continued to decline precipitously. New greenfield project announcements fell by 51 percent, and infrastructure project finance deals by 47 percent. Both had already fallen 28 percent last year. — UN News
