FDI to South Asia down by 26% to $52 bn in 2021
Foreign direct investment (FDI) flows to developing countries in Asia rose by 19% to an all-time high of $619 billion in 2021, according to UNCTAD’s World Investment Report 2022 published on June 9.
This marked the third consecutive year that investment flows to the region grew despite the COVID-19 pandemic, which led to a 35% plunge in global FDI in 2020.
“FDI flows to developing economies in Asia during the pandemic have bucked the global trend and underscored the resilience of developing economies in Asia,” said James Zhan, director of UNCTAD’s investment and enterprise division.
Although the upward trend in 2021 was experienced across most subregions – South Asia was the only exception – just six countries attracted more than 80% of FDI inflows. South Asia was the only subregion to suffer a drop in FDI inflows in 2021, as the $28 billion M&As registered the previous year were not repeated. Flows to India declined by 30% from its record level in 2020 to $45 billion in 2021.
However, a flurry of 108 new international project finance deals were announced in the country, compared with an average of 20 in the last 10 years. The largest number of projects (23) was renewable. Major projects include the construction in India of a $13.5 billion steel and cement plant by Arcelormittal Nippon Steel and the construction of a $2.4 billion car manufacturing facility by Suzuki Motor. Both companies are based in Japan.
China was the main recipient, followed by Hong Kong (China), Singapore, India, the United Arab Emirates and Indonesia. Foreign investment flows into sectors key to achieving the UN Sustainable Development Goals (SDGs) rose significantly across developing countries in Asia.
International project finance values in these sectors increased by 74% to $121 billion, primarily because of strong interest in renewable energy. Project values in this industry rose 123% to $77 billion.
“Looking ahead, mega-regional efforts are likely to boost further cross-border investment,” Zhan said. These include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership and the Indo-Pacific Economic Framework for Prosperity.