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Foreign direct investment flows to India have fallen by 30% from their 2020 high to $45 billion in 2021, according to a report by the United Nations Conference on Trade and Development (UNCTAD) .
However, a wave of 108 new international project finance deals have been announced in the country, compared to an average of 20 over the past 10 years, the trade body says in its World Investment Report 2022.
The renewable energy sector has attracted the greatest number of projects, he adds.
Major projects include the construction of a $13.5 billion steel and cement plant by Arcelormittal Nippon Steel and the construction of a $2.4 billion car manufacturing plant by Japan’s Suzuki Motor.
The top 10 economies for FDI inflows in 2021 were the United States, China, Hong Kong, Singapore, Canada, Brazil, India, South Africa, Russia and Mexico.
South Asia was the only sub-region to suffer a drop in FDI inflows in 2021, as the $28 billion mergers and acquisitions recorded in the previous year were not repeated. FDI in South Asia fell by 26% to $52 billion in 2021.
Foreign direct investment (FDI) flows to developing countries in Asia increased by 19% to a record high of $619 billion in 2021, according to UNCTAD. FDI in China increased by 21% and in Southeast Asia by 44%. Developing Asia receives 40% of global FDI.
This is the third consecutive year that investment flows to the region have increased despite the Covid-19 pandemic, which led to a 35% drop in global FDI in 2020.
“FDI flows to developing Asia during the pandemic have bucked the global trend and underscored the resilience of developing Asia,” said James Zhan, director of the investment and enterprise division of UNCTAD.
Although the upward trend in 2021 was seen in most sub-regions – South Asia was the only exception – only six countries attracted more than 80% of FDI inflows.
China was the main recipient, followed by Hong Kong, Singapore, India, United Arab Emirates and Indonesia.
Foreign direct investment (FDI) flows around the world have returned to pre-pandemic levels in 2021, reaching $1.58 trillion, a 64% increase from 2020, according to UNCTAD.
From a low base in 2020, global FDI rose last year on the back of booming M&A activity and rapid growth in international project finance due to loose financing and large infrastructure recovery plans.
Almost three-quarters of the growth was concentrated in developed economies, where FDI flows soared by 134%.
Flows to developing economies rose 30% to $837 billion – the highest level on record – largely on strong growth in Asia, a partial recovery in Latin America and the Caribbean and a recovery in Africa. The share of developing countries in global flows remained slightly above 50%.
The reinvested earnings component of FDI – profits retained in the foreign affiliates of multinational companies – accounted for the bulk of global growth, reflecting the record rise in corporate profits, particularly in developed economies.
The trade body, however, says the outlook for 2022 is bleaker. This year, the business and investment climate has changed dramatically as the war in Ukraine has led to a triple crisis of high food and fuel prices and tighter financing. Other factors darkening the horizon for FDI include further impacts of the pandemic, the likelihood of further interest rate hikes in major economies, negative sentiment in financial markets and a possible recession.
Despite high profits, investment by multinational companies in new overseas projects was still one-fifth below pre-pandemic levels last year. For developing countries, the value of greenfield ads remained stable.
Signs of weakness are already being felt this year. Preliminary data for the first quarter shows greenfield project announcements down 21% globally, cross-border M&A activity down 13% and international project financing deals down 4%.
“UNCTAD predicts that the growth momentum of 2021 cannot be sustained and that global FDI flows in 2022 are likely to follow a downward trajectory, remaining stable at best,” the report said. “However, while flows are expected to remain relatively flat in value terms, new project activity is likely to suffer more from investor uncertainty.”