Foreign direct investment will decrease by as much as 40% in 2020 due to the coronavirus pandemic, with developing countries expected to bear the brunt, according to the United Nations in its latest report published on Tuesday.
Foreign direct investment is projected to drop from last year’s $1.540 trillion to below $1 trillion, the first time since 2005, estimates the UN Conference on Trade and Development (UNCTAD).
In 2021, it will decrease by an additional 5 to 10%, with recovery expected only in 2022, according to UNCTAD.
“The largest decline in foreign direct investment will be recorded in developing economies” as production and extraction of raw materials are mainly financed by foreign capital, explains UNCTAD investment expert James Zhan.
Most global direct investments are generated by 5,000 leading multinational companies that have lowered their profit forecasts for this year by an average of 40%, notes UNCTAD.
The pandemic has also affected cross-border mergers and acquisitions, which have halved in the early months of this year, reports the United Nations agency.
UNCTAD also predicts that the crisis caused by the coronavirus pandemic will spur the strengthening of economic nationalism and accelerate the trend of automation in production due to governments’ and companies’ efforts to protect themselves from future shocks.
Companies will also seek to create shorter and more resilient value chains that will involve fewer production stages in fewer countries, estimates UNCTAD.
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