According to experts on global investments, foreign direct investment (FDI) flows are projected to face a steady U-shaped recovery worldwide in 2022 as it gradually shakes off the effect of COVID-19 on the economy.
Experts said at a webinar organized by the Islamic Development Bank Group (IsDB) and the United Nations Council on Trade and Development (Unctad) that foreign investment internationally is expected to decline by another 5 to 10 percent in 2021 as COVID-19 dampens investment outlook before steadily rebounding in 2022.
“Global FDI will face a U-shaped recovery versus a V-shaped recovery projected for global gross domestic product and trade next year. It is normal for FDI to lag behind according to the nature of the investment cycle versus the global business cycle. Overall, the outlook for global investment, GDP and trade are highly uncertain. Prospects for recovery depend on the duration of the pandemic and effectiveness of policy response. Furthermore, geopolitical conflicts, financial risks and trade tensions will add more uncertainty.”
According to Unctad, international FDI flows are projected to decline by up to 40 percent this year compared to $1.5 trillion in 2019. This is the first time since 2005 that global FDI would go below $1trillion.
In the first half of the year, global FDI flows fell 49 percent annually to $399 billion, the organization said in a study in October. The greatest fall was seen by developed economies, with FDI hitting $98 billion in the first six months of the year, a 75 percent annual drop.
In the first half of the year, developing countries weathered the storm relatively well with an average fall of 16 percent in FDI inflows. The biggest decline in foreign investment was in Latin America and Africa, while Asia also saw a lower inflow of FDI, according to Unctad statistics.
The world economy has been tipped into its worst recession since the 1930s by COVID-19, which has infected 55.5 million people worldwide and claimed more than 1.32 million lives. The International Monetary Fund (IMF) expects global production to shrink by 4.4 percent this year and to rebound only modestly in 2021.
The World Trade Organization (WTO) estimated a 9.2 percent decline in the volume of world merchandise for 2020, and forecasted growth of 7.2 percent for global trade in 2021.
“COVID-19 resulted in a triple shock of supply, demand and policy. It had a severe impact on trade, global value chains and investment. The outlook for next two years remains highly uncertain,” Mr. Zhan told delegates at a webinar on Impact of COVID-19 on the Global Investment Outlook.
However, he expressed optimism that FDI stock share of global GDP is more than 40 percent. Citing the example of developing countries, Mr. Zhan said the share of their FDI stock over GDP is more than 30 percent.
“We need to ensure to promote new investment as well as retain and facilitate existing investment during the pandemic and in the immediate future,” Mr. Zhan added.
Meanwhile, IsDB member countries’ GDP is projected to contract 2 percent this year with a substantial deterioration in current account balance and fiscal sustainability, said Amadou Diallo, Acting Director General, Global Practices at IsDB, an Islamic finance-focused multilateral development bank.
The IsDB Group has pledged a $2.3 billion support package to help the economies of its member countries, Mr Diallo said. “We are helping member countries in mobilizing external resources and accessing cheap short- and medium-term finance for the benefit of the private sector,” he added.
In many countries, the need to enforce lockdown procedures has led to supply chain and trade flow delays, further intensified by the protectionist approach of many nations to trade, Oussama Kaissi, chief executive of the Islamic Corporation for the Insurance of Investment and Export Credit, said.
“The risks associated with trade and investment have also been heightened because of the pandemic. It has adversely affected appetite for risk across all industries. This will reverse the already lackluster growth in global investment in the past decade,” Mr Kaissi said during the webinar.