FDI flows to India down 26% in 2021

Foreign direct investment (FDI) flows to India dropped 26% in 2021 compared with the previous year as large merger and acquisition (M&A) deals recorded in 2020 were not repeated, according to the UN Conference on Trade and Development (UNCTAD).

The trade body says global FDI flows showed a strong rebound in 2021, up 77% to an estimated $1.65 trillion, from $929 billion in 2020, surpassing their pre-Covid-19 level.

“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key sustainable development goals (SDG) sectors – such as electricity, food or health – is a major cause for concern,” says Rebeca Grynspan, secretary-general of UNCTAD, in its Investment Trends Monitor Global report.

Developed economies saw the biggest jump by far, with FDI of $777 billion in 2021 – three times the exceptionally low level in 2020, the report shows.

Over 80% of the increase in flows in Europe was due to large swings in conduit economies, the UN body says, adding that inflows in the United States more than doubled, aided by a surge in cross-border M&As.

FDI flows in developing economies rose 30% to nearly $870 billion, led by East and Southeast Asia, a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in West Asia, it says.

Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or almost three quarters, was recorded in developed economies. Developing economies, especially least developed countries, saw more modest recovery growth.

The report says investor confidence is strong in the infrastructure sector. International project finance deals were up 53% in number and 91% in value, with sizable increases in most high-income regions and in Asia and Latin America and the Caribbean.

In contrast, investor confidence in industry and global value chains remains weak. Greenfield investment project announcements remain flat, about 30% below pre-pandemic levels on average across industrial sectors. the report says.

The number of new projects in global value chains-intensive industries such as electronics fell further.

“New investment in manufacturing and GVCs remains at a low level, partly because the world has been in waves of the Covid-19 pandemic and due to the escalation of geopolitical tensions,” says James Zhan, director of investment and enterprise at UNCTAD.

“Besides, it takes time for new investment to take place. There is normally a time lag between economic recovery and the recovery of new investment in manufacturing and supply chains.”

FDI in the United States – the largest host economy – soared 114% to $323 billion, while cross-border M&As almost tripled in value to $285 billion.

FDI in the European Union was up 8% but flows in the largest economies remained well below pre-pandemic levels.

China saw a record $179 billion of inflows – a 20% increase – driven by strong services FDI, while Brazil saw FDI double to $58 billion from a low level in 2020, but inflows remained just below pre-pandemic levels.

The outlook for global FDI in 2022 is positive but the 2021 rebound growth rate is unlikely to be repeated, the report projects.