By Stephanie Nebehay
GENEVA (Reuters) – The coronavirus pandemic could slash global foreign direct investment (FDI) by as much as 40% this year, a United Nations agency said on Thursday, more than doubling its previous downward projection of less than three weeks ago.
FDI, comprising cross-border mergers and acquisitions (M&A), intra-company loans and investment in start-up projects abroad, is a bellwether of globalization and a reflection of the health of corporate supply chains and future trade ties.
“Updated economic impact estimates and earnings revisions of the largest multinational enterprises (MNEs) now suggest that the downward pressure on FDI could be -30% to -40% during 2020-2021,” the U.N. Conference on Trade and Development (UNCTAD) said on Thursday.
Those suffering most in the “dramatic drop” are energy-related industries (-208%), compounded by the additional shock due to the drop in oil prices, airlines (-116%) and the automotive sector (-47%), according to its latest Investment Trends Monitor.
UNCTAD’s March 8 report had said the outbreak – then centered in east Asia – would cause global FDI to shrink by 5%-15% from previous forecasts, resulting in only marginal growth in 2020-21, with automotive, airlines and energy industries hit hardest.
James Zhan, director of UNCTAD’s investment and enterprise division, said that global value chains and supply networks – which carry two-thirds of global trade – had been further disrupted and may never be the same.
“The widespread pandemic disruptions and demand shock have severely impacted on (multinationals’) international operations and FDI flows. This will lead to severe short-term disruption and possible long-lasting damage to global value chains and supply networks,” Zhan told Reuters.
Millions of suppliers dependent on global value chains and supply networks are now at risk, he said, “particularly those in developing economies where the governments do not have sufficient financial and fiscal means to support their firms”.
The Group of 20 wealthy nations, whose leaders held a virtual summit on Thursday, said they were committed to presenting a united front against the coronavirus pandemic, including preserving financial stability, reviving growth and resolving disruptions to global supply chains.
“The key challenge for the leaders of G20 and other leaders around the world is working together to restart the engine of global value chain and supply networks,” Zhan said.
(Reporting by Stephanie Nebehay; Editing by Hugh Lawson)
