FDI growth in 2020: India big reason in Asia bucking global trend

In a year when global FDI flows dropped by 35 per cent to $1 trillion, FDI flows to developing countries in Asia increased by 4 percent to $535 billion, reflecting resilience amid global FDI contraction, the UNCTAD World Investment Report 2021 said

China, Hong Kong, India and the United Arab Emirates have defied the global trend to register growth in foreign direct investment (FDI) flows in pandemic hit 2020, says the just released World Investment Report 2021 of United Nations Conference on Trade and Development (UNCTAD).

In a year when global FDI flows dropped by 35 per cent to $1 trillion, from $1.5 trillion in 2019, FDI flows to developing countries in Asia - led by the four countries - increased by 4 percent to $535 billion, reflecting resilience amid global FDI contraction, the report said.

"Despite the pandemic, FDI to and from the region remained resilient in 2020. Developing Asia is the only region recording FDI growth, accounting for more than half of global inward and outward FDI flows," said UNCTAD's director of investment and enterprise, James Zhan.

"FDI prospects in 2021 for Asia are more favourable than the global average, because of recovery in trade, manufacturing activities and a strong GDP growth forecast," he added.

Also read: US replaces Mauritius as second largest source of FDI in India in 2020-21

Within the region,  FDI in South Asia rose by 20 percent to $71 billion, driven mainly by a 27 percent rise in FDI in India to $64 billion. The report attributed robust investment in ICT (Information and Communications Technology) and construction for rise in India's FDI inflows. India's cross-border M&As also surged 83 percent to $27 billion, with major deals involving ICT, health, infrastructure and energy.

In China, FDI rose 6 percent to  $149 billion in 2020, reflecting the country's success in containing the pandemic and its rapid GDP growth recovery. The growth was driven by technology-related industries, e-commerce and research and development. Hong Kong surged by 62 percent to $119 billion, after a sharp fall of FDI in 2019 and due to corporate reconfigurations by multinational enterprises (MNEs) headquartered in the economy. FDI in the United Arab Emirates rose by 11 percent to $20 billion because of significant acquisitions in the energy sector.

Meanwhile, FDI fell in other South Asian economies that rely on export-oriented garment manufacturing. Inflows in Bangladesh and Sri Lanka contracted by 11 percent and 43 percent respectively. In Pakistan, FDI was down by 6 percent to $2.1 billion, cushioned by continued investments in power generation and telecommunication industries, the report said.

Also read: India bucks global decline in FDI; grows 13% against world's 42% fall in 2020

South-East Asia, an engine of global FDI growth for the past decade, recorded a 25% FDI contraction to $136 billion. Singapore, Indonesia and Vietnam, the region's largest FDI recipients in that order, all recorded FDI declines. FDI to Singapore fell by 21 percent to $91 billion, to Indonesia by 22 percent to $19 billion, and to Viet Nam by 2 percent to $16 billion.  Lockdown measures, successive waves of COVID-19 infection, supply chain disruption, falling corporate earnings, economic uncertainties and delayed investment plans were key reasons for the contraction.

Outward FDI (OFDI) from Asia increased by 7 percent to $389 billion - again, the only region recording expansion in outflows. The growth was driven by strong investment from Hong Kong (China) and Thailand. China, the largest investor country in 2020, saw OFDI (outward foreign direct investment) stabilising at $133 billion.

The report said that FDI prospects for the region are more favourable than the global outlook, with a projected growth of 5 percent to 10 percent, thanks to resilient intraregional value chains and strong economic growth prospects.

Also read: Gujarat receives highest FDI in FY21; Maharashtra ranks second