Foreign direct investment (FDI) to developing economies in Asia, hit hard by the economic downturn caused by the coronavirus pandemic, are projected to decline by up to 45% in 2020, according UNCTAD’s World Investment Report 2020. A global economic recession will further weigh on inflows to and outflows from the region. Economic growth in Asia is expected to stall to 0%.
The number of announced greenfield investment in the first quarter of 2020 dropped by 37%. The number of mergers and acquisitions (M&As) fell by 35% in April 2020.
“Lockdown measures and factory stoppages impacted supply chain and factories’ production in the region. Falling corporate earnings, a slump in global and regional demand and economic slowdown have led multinational enterprises (MNEs) to postpone investment plans,” said UNCTAD’s director of investment and enterprise, James Zhan.
The pandemic will precipitate a fall in reinvested earnings of foreign affiliates based in the region, affecting investment. It underscored the vulnerability of these supply chains and the significance of the role of China and other Asian economies as global production hubs. Outward FDI is also expected to fall as a result of liquidity challenges faced by companies from the region.
In 2019, FDI flows into developing economies in Asia declined by 5%, to US$474 billion. Growth in inflows in South Asia (10%) and South East Asia (5%) were not sufficient to offset the decline in investment in East Asia and West Asia (13% and 7% respectively). Asia remained the world’s largest FDI recipient, hosting more than 30% of global inflows in 2019.
South-East Asia, with FDI rising by 5% to a record level of $156 billion, continued to be the region’s growth engine in 2019. The growth was driven by strong investment mainly in Singapore, Indonesia and Viet Nam. The three countries received more than 80% of inflows in South-East Asia in 2019.
Outflows from Asia declined by 19% to $328 billion, a further decline from 2018. The decline in commodity prices, geopolitical tensions and China’s restrictions on outward FDI contributed to the fall. Singapore and India, however, are among the few economies that reported an increase in outward investment.