UNITED Nations Conference on Trade and Development (Unctad) warned that global foreign direct investment (FDI) flows in 2021 were unlikely to be sustained due to the recent global economic issues such as the war in Ukraine.
Unctad’s 2022 World Investment Report noted that although global FDI flows in 2021 hit $1.58 trillion, higher by 64 percent from the exceptionally low level in 2020, the global environment for International business and cross-border investment changed dramatically in 2022, with the war in Ukraine “on top of the lingering effects of the pandemic—is causing a triple food, fuel and finance crisis in many countries around the world.”
With this, the Unctad stressed, investor uncertainty could put significant downward pressure on global FDI in 2022.
“The 2021 growth momentum is unlikely to be sustained. Global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat. New project activity is already showing signs of increased risk aversion among
investors: preliminary data for Q1 2022 show Greenfield project numbers down 21 percent and international project finance deals down 4 percent,” the report read.
In developing Asia, Unctad noted, “despite successive waves of Covid-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion.”
“Asia is the largest recipient region, accounting for 40 percent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 percent of FDI to the region,” it added.
The Philippines is one of the countries in Asia that posted a growth in FDI inflows, hitting $10.52 billion in 2021, from $6.82 billion in 2020. The country’s FDI inflows in 2021 is the highest in six years.
The Unctad also noted that despite the growth in foreign direct investments, the effects on investment flows to developing countries in 2022 and beyond are difficult to anticipate.
“Apart from direct effects on countries in Central Asia with close investment ties in the region, the impact on others will be mostly indirect and depend on the extent of their exposure to the triple crisis—in food, fuel and finance—caused by the conflict and their consequent economic and political instability—key determinants of international private investment,” the World Investment Report noted.
Worryingly, the Unctad stressed, some emerging indicators suggest that the war in Ukraine could become a setback in the energy transition, with increased fossil fuel production in countries previously committed to reducing emissions.
“In the first quarter of 2022, most of the 5,000 largest multinational enterprises revised downward their earnings forecasts for 2022,” the Report read.
To achieve the sustainable development goals (SDGs), the Unctad said, “it is imperative that more funds are channeled to where they are most needed, on the ground, in developing countries.”
It’s worthy to note, according to Unctad, that an important effort will also have to come from domestic resource mobilization. However, the conflict in Ukraine has put further pressure on domestic resource mobilization in developing countries, already worsened by the Covid-19 pandemic and the increased frequency of natural disasters in the context of climate change.
“In the midst of rising and unsustainable debt levels, without adequate multilateral mechanisms for restructuring, countries are being forced to reduce their fiscal space at a time when they should be increasing it,” Unctad stressed.