The Daily Update: Foreign Direct Investment

After decades being the number one destination for foreign direct investment (FDI), last year the US lost its crown as China surpassed it as the world’s top destination for investment. According to figures released by the United Nations Conference on Trade and Development (UNCTAD), new investments by overseas businesses into the U.S fell by 49% to USD135bn last year whilst China saw direct investments climb 4% to USD163bn. By way of comparison, in 2019 the US received just over USD250bn of inflows, whilst China received US$140bn.

Globally, FDI collapsed in 2020, falling by 42% from the USD1.5tn a year earlier to approximately USD859bn. These levels were last seen in the 1990’s and was also more than 30% below the investment trough that followed the 2008-2009 global financial crisis. In a report last year, the UNCTAD projected a 5-10% fall in FDI this year.

The report showed that decline in FDI was concentrated in developed countries, where flows plummeted by 69% to approximately USD230bn. Away from the US on this side of the pond, investment in Europe fell two-thirds whilst here in the UK the FDI fell to zero. Australia also fell 46% to USD22bn. There were a couple of outliers, with Japan going from USD15bn to USD17bn and Israel USD18bn to USD26bn.

Even though FDI flows to developing economies fell by 12% to a projected USD616bn, they still accounted for 72% of global FDI – this is the highest share on record. However, across developing regions, the fall was decidedly uneven. In Latin America and the Caribbean FDI was down 37% with Africa down 18% and minus 4% in developing countries in Asia. FDI to transition economies declined by 77% to $13 billion. While developing nations in Asia weathered the storm well as a group, attracting an estimated USD476bn in FDI in 2020, flows to members of the Association of Southeast Asian Nations (ASEAN) contracted by 31%.