Uncertainty looms as global FDI could drop in 2022 – UNCTAD
“Developing countries face constraints in their responses to the reforms because of a lack of technical capacity to deal with the complexity of the tax changes, and because of investment treaty commitments that could hinder effective fiscal policy action.
Global Foreign Direct Investment,FDI, could decline this year after recovering to pre-coronavirus levels in 2021, as the impact of the Russia-Ukraine war and the continuing Covid-19 disruptions heighten uncertainty, the UN Conference on Trade and Development (Unctad) said in a report obtained by Persecondnews.com on Thursday.
The probability of more interest rate increases in major economies, as well as negative sentiment in financial markets and a potential economic recession are also weighing on the outlook for FDI flows, the UN Conference on Trade and Development (Unctad) said in the report.
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Despite high profits, investment by multinational companies in new projects overseas was still a fifth below pre-pandemic levels in 2021. For developing countries, the value of greenfield deals stayed flat.
“The global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine — on top of the lingering effects of the pandemic — is causing a triple food, fuel and finance crisis in many countries around the world,” Unctad said.
“Investor uncertainty could put significant downward pressure on global FDI in 2022.”
FDI flows in 2021 rose to $1.58 trillion, up to 64 percent from less than $1 trillion in 2020 — the first year of the pandemic, with growth registered across all regions.
“The 2021 growth momentum is unlikely to be sustained. Global FDI flows in 2022 will likely move on a downward trajectory, at best remaining flat,” Unctad said.
“However, even if flows should remain relatively stable in value terms, new project activity is likely to suffer more from investor uncertainty.”
The International Monetary Fund, the Institute of International Finance and the 38 countries that comprise the Organisation for Economic Co-operation and Development have all cut their growth projections for this year as well.
Global FDI in 2022 and beyond will be affected by the conflict-induced security and humanitarian crises, energy and food price increases, macroeconomic shocks and increased investor uncertainty, Unctad said.
However, developed and developing countries are expected to benefit from an increased revenue collection.
“While the tax reforms are going to increase revenue collection for developing countries, from an investment-attraction perspective they entail both opportunities and challenges,” said Unctad secretary general Rebeca Grynspan.
“Developing countries face constraints in their responses to the reforms because of a lack of technical capacity to deal with the complexity of the tax changes, and because of investment treaty commitments that could hinder effective fiscal policy action. The international community has the obligation to help.”