Foreign direct investment in Asia leads global recovery

JAKARTA – The global Foreign Direct Investment (FDI) fell by 35 percent over the past year due to the pandemic, going from US $1.5 Trillion to US $ 1 Trillion.

This year, global FDI is projected to reach new lows before then recovering by 10 to 15 percent by the end of the year, and Asia is expected to lead this rebound.

Worldwide COVID-19 lockdowns have slowed down investment projects, and the prospect of looming recession caused multinational companies to reevaluate their projects.

According to the World Investment Report recently published by the United Nation Conference on Trade and Development (UNCTAD), a huge proportion of the fall in FDI occurred in developed nations, as they FDI in these countries collectively fell by 58 percent, partly due to company and cash flow restructuring.

On the other hand, FDI in developing countries is relatively better off, as they only fell by 8 percent. Asia was a major reason for this, and thus developing countries now make up two thirds of the global FDI compared to only half in 2019. 

This year, the flow of FDI in Asia is projected to remain strong as Asian countries remain as attractive destinations for international investors during the pandemic.

However, greenfield projects in developing nations fell by 42 percent and international monetary agreements for infrastructure construction also slipped by 14 percent.

“These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects,” Acting UNCTAD Secretary-General Isabelle Durant said.

Vital sectors to development were hit hard by the pandemic resulting in the collapse of investment flow to the relevant sectors for Sustainable Development Goals (SDG) in developing nations. 

“The drop in foreign investment in SDG-related sectors may reverse the progress achieved in SDG investment in recent years, posing a risk to delivering the 2030 Agenda for Sustainable Development and to sustained post-pandemic recovery,” Ms. Durant further explained.

Asia is the only continent to experience a net increase in FDI, with a 4% rise from pre-pandemic levels. This is in stark contrast to other regions with FDI in Europe falling by 80%, North America by 40%, Africa by 16%, and South America by 45%.

As the vaccine rollout speeds up and herd immunity slowly but surely achieved, the end of the pandemic is in sight. The strength of Asian economies, especially East Asian powerhouses China, Japan, and South Korea, is expected to play a key role in the global post-pandemic economic recovery.