Flows of foreign direct investment (FDI) to India were down 26 percent in 2021, mainly because major M&A deals recorded in 2020 were not repeated, the UN trade organization said.
The United Nations Conference on Trade and Development (UNCTAD) Investment Trends Monitor published Wednesday said global direct investment flows showed a strong recovery in 2021, growing 77 percent to an estimated $1.65 trillion, from $1 929 billion in 2020, bringing them to their pre-Covid -19 level.
“The recovery of investment flows to developing countries is encouraging, but the stagnation of new investment in the least developed countries in industries important for production capacity and key sectors of the Sustainable Development Goals (SDGs), such as electricity, food or health, is a big problem. cause for concern,” said UNCTAD Secretary-General Rebeca Grynspan.
The report said developed economies saw the largest increase by far, reaching an estimated $777 billion in 2021 — three times the exceptionally low level in 2020.
FDI flows in emerging economies rose 30 percent to nearly $870 billion, with growth accelerating in East and Southeast Asia (20 percent), recovering to near pre-pandemic levels in Latin America and the Caribbean, and an increase in Western Asia.
FDI flows to South Asia fell 24 percent to $54 billion in 2021, from $71 billion in 2020.
Foreign direct investment in the United States — the largest host economy — rose 114 percent to $323 billion, and cross-border mergers and acquisitions nearly tripled in value to $285 billion.
“Flows to India were 26 percent lower, mainly because major mergers and acquisitions recorded in 2020 were not repeated,” the report said.
China saw record inflows of $179 billion — a 20 percent increase — driven by strong FDI in the services sector.
Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or nearly three quarters, was recorded in developed economies. Emerging economies, especially least developed countries (LDCs), saw more modest recovery growth, the report said.
UNCTAD’s World Investment Report, released last June, said India received $64 billion in foreign direct investment during the 2020 pandemic, the world’s fifth largest recipient of inflows.
Foreign direct investment to India increased 27 percent to $64 billion in 2020, from $51 billion in 2019, fueled by acquisitions in the information and communications technology (ICT) industry, the report said.
The report released last year stated that the pandemic has increased the demand for digital infrastructure and services worldwide. This had boosted the value of greenfield FDI project announcements targeting the ICT industry, up more than 22 percent to $81 billion.
The report had noted that the second wave of the Covid-19 outbreak in India weighed heavily on the country’s overall economic activities.
Announced greenfield projects in India had shrunk 19 percent to $24 billion, and the second wave in April 2021 impacted economic activity, “which could lead to a bigger contraction in 2021,” it had said.
Investor confidence is strong in infrastructure sectors, according to the latest Investment Trends Monitor, supported by favorable long-term financing conditions, recovery stimulus packages and foreign investment programs.
By contrast, investor confidence in the sector and global value chains remains weak. Greenfield investment project announcements were similar and the number of new projects in global value chain (GVC) intensive industries, such as electronics, continued to decline.
The report described the outlook for global FDI in 2022 as positive, but added that the growth rate of 2021 is unlikely to repeat.
As in 2021, the underlying trend – after deduction of throughputs, one-off transactions and intra-company financial flows – will remain relatively subdued. International project financing in infrastructure sectors will continue to drive growth momentum, the report said.
“New investment in manufacturing and GVCs remains low, partly because the world is in waves of the Covid-19 pandemic and because of the escalation of geopolitical tensions,” said James Zhan, director of investment and entrepreneurship at UNCTAD.
“Moreover, it takes time for new investments. There is normally a time lag between economic recovery and the recovery of new investments in production and supply chains,” Zhan added.
The prolonged duration of the health crisis with successive new waves of the pandemic remains a major downside risk.
The pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment incentives, remain important factors of uncertainty.
Other key risks, including labor and supply chain bottlenecks, energy prices and inflationary pressures, will also impact results.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)