Foreign Direct Investment to Plunge as Much as 40%, UN Projects

(Bloomberg) -- The United Nations forecasts foreign direct investment globally will fall by as much as 40% this year due to the coronavirus pandemic and continue to slump in 2021, hitting developing nations hardest.

The lockdown measures are slowing investment projects and will lead multinational companies to reassess plans, according to a report released Tuesday by the UN’s trade and development arm. FDI will drop 30% to 40% this year and won’t begin to recover until 2022, and then only slowly, the agency said, cautioning that the the forecast is subject to uncertainty due to Covid-19.

The projected decline would put FDI below $1 trillion for the first time since 2005.

“Flows to developing countries will be hit especially hard, as export-oriented and commodity-linked investments are among the most seriously affected,” UN Secretary-General Antonio Guterres wrote in the report’s preface. “The consequences could last well beyond the immediate impact on investment flows.”

The top 5,000 multinational companies globally have seen expected earnings reduced by 40% on average, with lower profits hitting reinvested earnings that account for more than 50% of FDI, the group said.

The post-pandemic years are likely to see a focus on shifting production to the regional or local level, along with tougher competition in attracting investment from a smaller pool of funds, according to the report. Companies are also likely to try to diversify suppliers.

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