The World Investment Report has been published annually since 1991, by the United Nations Conference on Trade and Development (UNCTAD). It focuses on trends in foreign direct investment (FDI) worldwide, at the regional and country levels and emerging measures to enhance its contribution to development.
UNCTAD- United Nations Conference on Trade and Development (UNCTAD) was established in 1964 with an aim to promote the integration of developing countries into the world economy. Headquartered at Geneva in Switzerland, it is a permanent intergovernmental body.
Some of the reports published by UNCTAD are- Trade and Development Report, World Investment Report, The Least Developed Countries Report, Information and Economy Report, Technology and Innovation Report and Commodities and Development Report.
The World Investment Report 2020 was prepared by a team led by James X. Zhan (Director of Investment and Enterprise- UNCTAD). Every year the report provides the following information-
- Analysis of the trends in FDI stressing on the development implications.
- Rankingof the largest transnational corporations in the world.
- Analysisof topics related to FDI.
- Policy analysis and recommendations.
- Data on FDI flows and stocks at the country level.
Key points of World Investment Report 2020
- FDI will be under acute pressure in 2020 due to the COVID-19 pandemic. Global FDI is likely to decrease by up to 40% in 2020, from previous year value US$ 1.54 trillion. This will bring FDI below US$ 1 trillion mark for the first time since 2005.
- FDI forecasted to fall by 5% to 10% in 2021 and recover in 2022, by global value chains (GVCs) restructuring, replenishment of capital stock and recovery of the global economy.
- Developing countries will be hit the hardest as they rely more on investment in Global Value Chain (GVC) based industries which will be severely affected, along with export-oriented and community-linked investments.
- With frequent lockdowns, slowing down existing investment projects, the outlook remains uncertain. Prospects will depend on duration of the crisis and whether the Govt. policies can mitigate the effects of the pandemic on the economy of various countries.
- A new chapter has been added to the report at the request of the UN General Assembly, on Investment in the Sustainable Development Goals.
- International private sector flows to four out of ten SDG areas have failed to rise since the adoption of the SDGs.
- Three key technology trends of the new industrial revolution that will shape international production in future are robotics-enabled automation, enhanced supply chain digitalization and additive manufacturing. An efficient and promising policy environment for trade and investment will speed up the pace and extent of the new technological. They will also depend on sustainability concerns, emission target differences between countries, market-driven changes in products and processes and supply chain flexibility.
Transformation of Global Production
The World Investment Report 2020 states that COVID-19 is likely to transform global production, with the pandemic amplifying existing challenges. Reshoring, diversification and regionalization and replication will drive restructuring of global value chains. The impact of these elements of trajectories on international production are-
- Reshoring– Shorter and less fragmented value chains, re-bundling of supply chain and production stages and less offshoring and outsourcing.
- Diversification– Increased platform-based supply chain governance and more concentrated value added.
- Regionalization– Shorter physical supply chains, but not less fragmented, more geographically distributed value added. Decentralized governance, outsourcing.
- Replication– Re-bundling of production stages, higher geographical distribution of activities, concentrated value added and increased out-sourcing.
Region wise FDI Analysis
Foreign direct investment (FDI) to developing economies in Asia will be hit the hardest due to the economic downturn caused by the pandemic. It is projected to decline by up to 45% in 2020. The number of greenfield investments in the first quarter of 2020 dropped by almost 37% and mergers and acquisitions (M&As) dropped by 35% in April 2020.
East Asia– FDI inflows declined by 13% to $233 billion in 2019. Despite numerous trade tensions, inflows to China increased to an all-time high of $141 billion.
South-East Asia– FDI rose by 5% to $156 billion, making South-East Asia the region’s growth engine in 2019. Growth was driven by strong investments in the countries- Singapore, Indonesia and Vietnam, which received more than 80% of inflows in South-East Asia in 2019.
South Asia– FDI flows increased by 10% to $57 billion. The rise was largely driven by a 20% increase in investment in India, the largest South Asian FDI recipient. India comes under the top 10 world’s largest FDI recipients as its position jumped from 12th in 2018 to 9th in 2019.
West Asia– FDI declined by 7% to $28 billion. Turkey, United Arab Emirates and Saudi Arabia accounted for the majority of inflows in 2019, UAE being the largest FDI recipient in West Asia.
The pandemic and low commodity prices, especially oil, will exacerbate the declining FDI trend in Africa in 2020. FDI flows are forecasted to fall between 25% and 40% based on GDP growth projections and a range of investment specific factors. Services industries including aviation, hospitality, tourism and leisure are likely to suffer the most. Manufacturing industries intensive in global value chains will be severely affected as well. Therefore, concerted efforts to promote economic diversification and industrialization will be needed in the coming years.
Factors offering hope for the recovery of investment flows to Africa are-
- Promotion of investment in infrastructure, resources and industrial development by major global economies. Investments from these global economies that have political backing, could be relatively more resilient.
- Deepening regional integration, as a result of the commencement of trade under the African Continental Free Trade Area (AFCFTA).
Countries will have to strategically deal with the COVID-19 pandemic. They will have to put efforts to increase investments and attract FDI. More emphasis shall be given to the reforms and policies affecting the demand side, which will lead to a rise in investments and production. The current crisis could be a catalyst for structural transformation of international production. The economies will have to take advantage of the new industrial revolution and overcome the growing economic nationalism. It is high time that due focus needs to be given to sustainable development with cooperation between countries to ensure a better future for the coming generations.
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