25% fall in FDI flows to SE Asia in 2020; flows to India rose: UNCTAD

24 Jun '21

3 min read

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Foreign direct investment (FDI) inflows to developing Asia as a whole were resilient, rising by 4 per cent to $535 billion in 2020; however, excluding sizeable conduit flows to Hong Kong, flows to the region were down by 6 per cent. While inflows to China rose by 6 per cent to $149 billion, Southeast Asia saw a 25 per cent decline and flows to India increased, driven in part by merger and acquisitions (M&As).

Elsewhere in the region, FDI shrank. In economies where FDI is concentrated in tourism or manufacturing, contractions were particularly severe. M&A activity was robust across the region, growing by 39 per cent to $73 billion–particularly in technology, financial services and consumer goods.

In contrast, the value of announced greenfield investments contracted by 36 per cent to $170 billion, and the number of international project finance deals stagnated.

Flows to East Asia rose by 21 per cent to $292 billion, partly due to corporate reconfigurations and transactions by multinational corporations headquartered in Hong Kong.

FDI growth in China continued in 2020, with an increase of 6 per cent to $149 billion, reflecting the country’s success in containing the pandemic and its rapid GDP recovery. The growth was driven by technology-related industries, e-commerce and research and development.

South-East Asia saw FDI contract by 25 per cent to $136 billion. The largest recipients—Singapore, Indonesia and Vietnam—all recorded declines. FDI to Singapore fell by 21 per cent to $91 billion, to Indonesia by 22 per cent to $19 billion, and to Viet Nam by 2 per cent to $16 billion.

Investment in South Asia rose by 20 per cent to $71 billion, driven mainly by a 27 per cent rise in FDI in India to $64 billion. Robust investment through acquisitions in information and communication technology (ICT) and construction bolstered FDI inflows. Total cross-border mergers and acquisitions (M&As) surged by 86 per cent to $28 billion, with major deals involving ICT, health, infrastructure and energy sectors.

FDI fell in South Asian economies that rely to a significant extent on export-oriented garment manufacturing. Inflows in Bangladesh and Sri Lanka contracted by 11 per cent and 43 per cent, respectively.

FDI flows in West Asia increased by 9 per cent to $37 billion in 2020, driven by an increase in M&A values (60 per cent to $21 billion) in natural resource-related projects. In contrast, greenfield investment projects were substantially curtailed, because of both the impact of the pandemic and low prices for energy and commodities.

FDI in the United Arab Emirates rose by 11 per cent to $20 billion, driven by acquisitions in the energy sector. Inflows in Turkey decreased by 15 per cent to $7.9 billion. Investments in Saudi Arabia remained robust, increasing by 20 per cent to $5.5 billion.

FDI prospects for the West Asia region are more positive than those for other developing regions, owing to resilient intraregional value chains and stronger economic growth prospects. Signs of trade and industrial production recovering in the second half of 2020 provide a strong foundation for FDI growth in 2021.

Nonetheless, in smaller economies oriented towards services and labourintensive industries, particularly hospitality, tourism and garments, FDI could remain weak in 2021, the UNCTAD report added.

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