The UN Conference on Trade and Development (UNCTAD) has released the World Investment Report 2020, which states that the coronavirus pandemic has caused a “steep drop” in investment flows and has hit developing countries the hardest. The report finds that lockdown measures have slowed existing investment prospects and caused multinational enterprises to reassess new projects.
The World Investment Report 2020 titled, ‘International Production Beyond the Pandemic,’ projects that global foreign direct investment (FDI) will decrease up to 40 percent in 2020, bringing FDI below USD 1 trillion for the first time since 2005. FDI is expected to decrease 5-10 percent in 2021 and to begin to recover in 2022, led by global value chains, replenishment of capital stock, recovery of the global economy, and restructuring for resilience. UNCTAD Secretary-General Mukhisa Kituyi said the outlook is “highly uncertain” and depends on “the duration of the health crisis and on the effectiveness of the policies mitigating the pandemic’s economic effects.” He stressed that the transformation underway in international production will “impact developing countries over the coming decade” and requires a “major policy rethink.”
The 2020 report highlights three technology trends of the industrial revolution that are expected to shape international production: additive manufacturing; enhanced supply chain digitalization; and robotics-enabled automation. The policy environment for trade and investment and sustainability concerns, such as differences between regions and countries on emission targets and environmental, social, and governance standards, will influence the pace and extent of technological adoption. The report states that there is an opportunity for increased sustainability if countries and regions take advantage of the new industrial revolution and overcome growing economic nationalism. The report describes four possible trajectories: reshoring; diversification; regionalization; and replication.
The outlook depends on the duration of the health crisis and on the effectiveness of the policies mitigating the pandemic’s economic effects.
The report features a chapter on investment in the SDGs, which finds that international private sector flows to four out of ten key SDG areas have “failed to increase substantially since the adoption of the goals” in 2015. Progress on investment in the SDGs is visible in infrastructure, climate change mitigation, food and agriculture, health, telecommunication, and ecosystems and biodiversity. Although sustainability-themed funds are growing rapidly in number, size, and variety, these finances are not yet translating into investments on the ground in developing countries. The report also finds that very few national strategies on sustainable development address the promotion of investment in the SDGs, and further warns that existing investment promotion instruments related to the SDGs are “limited in number and follow a piecemeal approach,” with countries most often promoting investment in the SDGs through incentive schemes. To ensure that increased interest in SDG finance translates into increased SDG investment, the report presents an ‘Action Plan for Investment in the SDGs.’
The Action Plan presents six transformative actions: mainstreaming the SDGs in national investment policy frameworks and in the international investment treaty regime; reorienting investment promotion and facilitation strategies towards SDG investment; establishing regional SDG investment compacts; fostering new forms of partnerships for SDG investment; deepening environmental, social, and governance (ESG) practices’ integration in financial markets by establishing a global monitoring mechanism with a harmonized approach to disclosure; and changing the global business mindset. The Plan is a response to the UN General Assembly (UNGA) resolution on ‘Promoting Investments for Sustainable Development’ (A/RES/74/199) that calls for concrete recommendations for advancing investment to implement the 2030 Agenda for Sustainable Development.
In Africa, investment flows are predicted to decline 25-45 percent in 2020, as a result of the coronavirus pandemic and low commodity prices, especially for oil. The region’s manufacturing and service industries, including aviation, hospitality, leisure, and tourism have also been “hit hard,” a trend that is projected to persist into the future. The report identifies two factors that “offer hope” for the recovery of investment flows in Asia: major global economies are recognizing ties to the continent and promoting investment in infrastructure and industrial development; and trade under the African Continental Free Trade Area (AfCFTA) is deepening regional integration.
In Asia, investment flows are predicted to decline 45 percent in 2020. The pandemic caused lockdown measures and factory stoppages that impacted factories’ production and supply chains in the region. In addition, decreasing corporate earnings and the economic slowdown have resulted in multinational enterprises postponing investment plans.
In Latin America, investment flows are expected to halve in 2020. The pandemic has compounded structural weaknesses and political and social unrest, exacerbating foreign investment challenges and triggering a “deep recession.” These shocks are expected to have the most impact in the commodities, tourism, and transport sectors. In addition, Argentina, Brazil, Chile, Colombia, and Peru, which depend on FDI in extractive industries, will be hurt by low oil and commodity prices. The Caribbean is expected to be “hit hard” by the collapse in tourism. The region is also predicted to be “strongly affected” by the global slowdown in demand, particularly in trade with China and the US. [Publication: World Investment Report 2020: International Production Beyond the Pandemic] [UNCTAD Press Release] [UNCTAD Press Release on Africa] [UNCTAD Press Release on Asia] [UNCTAD Press Release on Latin America]