UK 2nd in the world for foreign direct investment according to UN report

Global flows of foreign direct investment have been severely hit by the COVID-19 pandemic but the UK is amongst those nations leading the way back. In 2020 foreign direct investment (FDI) fell by one third to $1 trillion, well below the low point reached after the global financial crisis a decade ago.

Global Impact

According to United Nations Conference on Trade and Development (UNCTAD), during 2020 developed economies saw the biggest fall in investment, with FDI in the wealthier countries witnessing a 75-per cent drop from 2019 levels to just $98 billion during the first half of the year — a level last seen in 1994.

UNCTAD’s report said that the trend was ‘exacerbated by sharply negative inflows in European economies.  Flows to Europe in the first half of 2020 turned negative for the first time, hitting minus $7 billion.  FDI flows in North America fell by 56 per cent during the same six-month period.

Knock-on Effects

Greenfield investments in industry and new infrastructure investment projects in developing countries were hit especially hard.  These investments — considered an indicator of future FDI trends — typically refer to projects that create new physical facilities which are considered productive, in part because they typically create jobs.

UNCTAD said that the outlook here was poor, as new Greenfield investment project announcements dropped by 37 per cent in the first eight months of the year to $358 billion.

‘This is a major concern, because international investment flows are vital for sustainable development in the poorer regions of the world. Increasing investment to support a sustainable and inclusive recovery from the pandemic is now a global policy priority. This entails promoting investment in infrastructure and energy transition, in resilience and in health care.’

Bouncing Back

The global economy is expected to overcome the debilitating effect of the pandemic in 2021, with developed economies such as the US, UK, and the European Union (EU) expected to record healthy growth benefiting from their rapid vaccination drives.

In this respect, the UK is helping to lead the way back.  The UK is ranked number 1 in Europe for foreign direct investment and number 2 in the world, according to a UN report.  The UK’s inward investment stock rose $2.2trn in 2020.

Within the UK, London tops the table of regions with the greatest amount of foreign investment, according to figures published by the ONS.  The value of FDI in the capital reached £660.8bn in 2019, representing 42 per cent of the aggregate amount of inward FDI in the UK.  The value of FDI in London was three times higher than its closest regional rival, the South East, which attracted £197.6bn in foreign funding.

Global Effort

A concerted global effort is needed to increase FDI leading up to 2030. The package of recommendations put forward by UNCTAD for promoting investment in sustainable recovery provides an important tool for policymakers and the international development community.

The UNCTAD report and its key messages are available to view online.   If you would like any further information about these global trends and how they might influence your business decisions moving forward, please don’t hesitate to contact Briars.