As an impact of the prolonged economic crisis and the Coronavirus pandemic, Global Foreign Direct Investments (FDI) has reduced to nearly half in the first six months of 2020 as compared to the same period a year ago, reveals United Nations (UN). According to UN, the global FDI plunged 49% in the first six months of 2020. It also forecasts the global FDI will decline by up to 40% overall this year, as compared to 2019.
As per a report by UN Conference for Trade and Development (UNCTAD), FDI flows to the European economies have turned negative for the first time ever, dropping to – $7 billion from $202 billion. On the other side of Atlantic, Foreign Direct Investment to the United States have declined by 61% to $51 billion.
According to Government of India’s Commerce and Industry Ministry, during April-August 2020, the country received its highest-ever total FDI for the first 5 months of a financial year. Total foreign inflows surged from $11.51 billion between April and June to $35.73 billion by the end of August, 13% higher as compared to the same period last fiscal. The foreign investment inflows into India have hit the record high despite a sharp 60% contraction in the first quarter and July, August raking in more than $20 billion in equity FDI.
Also, the equity FDI into India has more than quadrupled from $6.5 billion between April and June, to $27.1 billion by August; 16% higher as compared to the first five months of 2019-20. As the Indian government claims, India received around $50 billion in equity FDI in the financial year 2019-20.
Total Foreign Direct Investment inflow to India grew 55% to $358.29 billion in 2014-20 from $231.37 billion in 2008-14. On the other hand, FDI equity inflows increased by 57% from $160.46 billion to $252.42 billion in the same period.
Globally, the investment inflows have declined most strongly in the countries like Australia, Brazil, Italy and the United States in 2019. The countries with higher level of industrialization that normally account for around 80% of global transactions were hardest hit by the trend. Foreign Direct Investment flows to these countries have dropped to $98 billion, a level that was last seen 26 years ago in 1994.
However, world’s second biggest economy China has bucked the declining trend, with relatively stable Foreign Direct Investment flows. During the first six months of 2020, decline in the investment flows in China was modest. In between January-September 2020, FDI into the Chinese economy has increased by 2.5%. Majority of the investments in China were in the electronic commerce services, specialized technology services and R&D as well, as UNCTAD revealed.
As multinationals postponed the investments to preserve cash during the crisis period, the global FDI fell as a result. The sectors that have seen dip in FDI flow include cross-border mergers and acquisitions, new greenfield investment projects and project finance deals as well.
According to James Zhan, Director of UNCTAD’s investment and enterprise division, the declining trend of Foreign Direct Investment flows are expected to continue in the remaining months of this year and in 2021 as well. According to Zhan, the flows are likely to drop by 30%-40% in 2020 and moderately in 2021, by 5%-10%.
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