The United Nations Conference on Trade and Development (UNCTAD) on Monday said that China, Hong Kong, India and the UAE have defied the global trend and witnessed a 4% growth in foreign direct investment (FDI) flows in the pandemic hit 2020, reflecting resilience amid a contraction in global investment flows.
The four countries received FDI worth $535 billion in 2020. Global FDI flows dropped 35% to $1 trillion from $1.5 trillion in 2019,
In its World Investment Report 2021, UNCTAD said that FDI in South Asia rose 20% to $71 billion, driven mainly by a 27% increase in FDI in India to $64 billion.
“In India, robust investment in ICT and construction bolstered FDI inflows,” UNCTAD said, adding that cross-border M&As surged 83% to $27 billion, with major deals involving ICT, health, infrastructure and energy.
“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.
In China, FDI rose 6% 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. FDI in Hong Kong surged 62% to $119 billion while that in the UAE rose 11% to $20 billion.
FDI fell in other South Asian economies that rely on export-oriented garment manufacturing. Inflows in Bangladesh and Sri Lanka contracted 11% and 43%, respectively. In Pakistan, FDI was down by 6% to $2.1 billion, cushioned by continued investments in power generation and telecommunication industries.
As per the report, FDI prospects for Asia are more favourable than the global outlook, with a projected growth of 5-10%, thanks to resilient intraregional value chains and strong economic growth prospects.
“Signs of trade and industrial production recovering in the second half of 2020 provide a strong foundation for FDI growth in 2021,” the Geneva-based organisation said, adding that manufacturing, an important FDI sector for the region, already showed signs of recovery in the second half of 2020.
However, it cautioned that in smaller economies oriented towards services and labour-intensive industries, particularly hospitality, tourism and garments, FDI could decline further in 2021.
Outward FDI (OFDI) from Asia increased by 7% to $389 billion – again, the only region recording expansion in outflows. The growth was driven by strong investment from Hong Kong and Thailand. China, the largest investor country in 2020, saw OFDI stabilising at $133 billion, UNCTAD said.
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