Ukraine War Threatens Pre-Pandemic Recovery of Global Foreign Direct Investment
U.N. economists are warning that the war in Ukraine threatens to upend last year’s recovery of foreign direct investment to pre-pandemic levels and send global investment flows spiraling downward in 2022. UNCTAD, the U.N. Conference on Trade and Development, has just launched its World Investment Report 2022.
Multiple global crises have seriously dimmed prospects for sustaining last year’s strong recovery, which saw global FDI, or foreign direct investment, reach nearly $1.6 trillion. That is an increase of almost 70% from the exceptionally low levels during the 2020 pandemic year.
UNCTAD Secretary-General Rebeca Grynspan says climate change, the pandemic and the war in Ukraine have dramatically changed the global environment for international business in the last three months.
She says multinational corporate investors are facing a year of uncertainties.
“Global value chains are greatly disrupted, consumers are worried, and interest rates are rising. Fears of a recession are high, and rising investor uncertainty will put significant downward pressures on global foreign direct investment in 2022,” she said.
The report notes last year’s recovery benefited all regions of the world. However, developed economies fared much better than those in the developing world. It says FDI flows rose 134% in developed countries, reaching $746 billion, more than double the 2020 level.
Grynspan says multinational companies raked in record profits, mainly from booming merger and acquisition transactions.
“Overall, FDI flows to developing economies grew much more slowly than those to developed regions, but still increased by 30%. The increase was mainly the result of strong growth performance in Asia, a partial recovery in Latin America and the Caribbean, and an uptick in Africa,” she said.
The United States, China, Hong Kong, Singapore, and Canada head the list of top 10 economies for FDI inflows in 2021.
UNCTAD economists say the growth momentum generated in 2021 cannot be sustained. They say global FDI flows this year likely will move on a downward trajectory or remain flat.
They warn FDI flows to developing countries in 2022 are expected to be strongly affected by the war in Ukraine. They say the fiscal space in many countries will be significantly reduced. They add governments, especially in oil-and food-importing developing economies, will have fewer resources to spend on so-called greenfield or new projects.