Global flows of foreign direct investment (FDI) took a severe hit during the pandemic, falling by one-third to a 15-year low of $1trn in 2020, even lower than the trough in FDI experienced after the global financial crisis a decade ago.

According to the 2021 World Investment Report from the United Nations, greenfield investments in industry (where a company builds a subsidiary in another country) and new infrastructure investment projects in developing countries were hit especially hard. This is a major concern, because international investment flows are vital for sustainable development in the poorer regions of the world. The key areas the UN is focusing on now is investment in infrastructure, energy transition and healthcare.

While the reduction of FDI to developing countries was 8% last year, the biggest fall was actually in developed countries, which saw a 58% drop in investment. However, the impact of the pandemic on global FDI was concentrated in the first half of 2020. In the second half, cross-border M&As and international project finance deals largely recovered.

Regional breakdown
Among developed countries, FDI flows to Europe fell by 80%, reaching only $73bn, and most large economies in Europe saw sizeable declines. Including the UK (-57%), France (-47%) and Germany (-34%).

Flows to North America fell by 42%, while FDI flows to Africa fell by 16% to $40bn – a level last seen 15 years ago. Meanwhile, inflows in China actually increased by 6% last year, to $149bn, but India did even better, seeing a 25% rise in FDI. However, South-East Asia saw a 25% decline. Elsewhere, flows to Australia halved and those to Japan decreased by 30%. Lastly, FDI in Latin America and the Caribbean fell heavily, down by 45% to $88bn.

The current forecast by the UN is for FDI levels to increase in 2022 which, at the upper bound of projections, would bring FDI back to the 2019 level.