United Nations Conference on Trade and Development’s World Investment Report 2020 has projected global foreign direct investment flows to decrease by up to 40 per cent this year, from their 2019 value of $1.54tn.
This is expected to bring FDI below $1tn for the first time since 2005. In addition, FDI is projected to decrease by a further five to 10 per cent in 2021, and will initiate a recovery in 2022, the report says.
UNCTAD Secretary-General, Mukhisa Kituyi, said,“The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policies mitigating the pandemic’s economic effect”
The Coronavirus Disease, according to UNCTAD, is a supply, demand and policy shock for FDI. “The lockdown measures are slowing down existing investment projects. The prospect of a deep recession will lead multinational enterprises to re-assess new projects.”
Policy measures taken by governments during the crisis include new investment restrictions.
FDI amounted to only $214.25m (3.66 per cent) of the total capital inflows in the first quarter of 2020. A decline of 16.72 per cent compared to $257.25m received in Q4 2019, and 13.39 per cent reduction.
With unstableoil prices, there are concerns over the quality of investment attracted into the economy, especially when investors are jittery about naira stability and the country’s capacity to service its debts.
Of the $5.85bn received in Q1 2020, portfolio investment accounted for 73.61 per cent ($4.31bn) of the total capital importation recorded by the National Bureau of Statistics.
Nigeria received $5.85bn capital importation in Q1 2020, against $8.51bn a year earlier.
The $5.85bn worth of capital importation in Q1 2020 represents an increase of 53.97 per cent when compared to how much was received in Q4 2019, according to NBS.
UNCTAD noted that investment flows were expected to slowly recover starting 2022, led by global value chains restructuring for resilience, replenishment of capital stock and recovery of the global economy.
The trade organisation stated that multinational enterprises’ profit alerts were an early warning sign, adding that the top 5,000 MNEs worldwide, which account for most of global FDI, have seen expected earnings for the year revised down by 40 per cent on average, with some industries plunging into losses.
Lower profits will hurt re-invested earnings, which on average account for more than 50 per cent of FDI.