By Ade Jacobs
Nigeria and other African nations attracted an estimated $38 billion foreign direct investment (FDI) last year, representing a reduction of over 18 per cent as compared to 2019, a United Nations Conference of Trade and Development (UNCTAD) report has revealed.
The report said Nigeria, the continent’s largest economy, attracted the biggest greenfield investment of $2.6 billion dollar within the past year, compared to $3. 3 billion two years ago.
The agency said the global economy was experiencing weak FDI to the level last witnessed in the 1990s, more than 30 per cent 10 years ago, during the global economic crisis, warning that FDI flows would remain weak this year despite recovery projections.
The UN’s agency blamed the slump in new investments to Africa on the coronavirus pandemic which ravaged global economy in most part of last year, adding that the continent faces greater challenge this year in the provision of critical infrastructure as impact of COVID 19 on global trade bites harder.
“The effects of the pandemic on investment will linger. Investors are likely to remain cautious in committing capital to new overseas productive assets,” said James Zhan, director of UNCTAD’s investment division.
He said for developing countries, the prospects for 2021 are a major concern. Although FDI flows in developing economies appear relatively resilient in 2020, greenfield announcements fell by 46 per cent and international project finance by 7 per cent, according to the report.
“These investment types are crucial for productive capacity and infrastructure development and thus for sustainable recovery prospects,” he noted.
According to the report, the developed economies such as the US, Europe and Asia faced the biggest decline in FDI after new investments plummeted by 69 per cent to an estimated $229 billion.
Flows to North America declined by 46 per cent to $166 billion, with cross-border mergers and acquisitions (M&As) dropping by 43 per cent. Announced greenfield investment projects also fell by 29 per cent and project finance deals tumbled by 2%.
The United States recorded a 49 per cent drop in FDI, falling to an estimated $134 billion. The decline took place in wholesale trade, financial services and manufacturing. Cross-border M&A sales of US assets to foreign investors fell by 41 per cent, mostly in the primary sector.
The report further stated that Europe experienced the biggest hit as investment flows fell by two-thirds to -$4 billion, while in the United Kingdom, FDI fell to zero. It, however, noted some bright spots in Sweden and Spain.
“But Europe’s overall FDI performance masks a few regional bright spots. Sweden, for example, saw flows double from $12 billion to $29 billion. FDI to Spain also rose 52%, thanks to several acquisitions, such as private equities from the United States Cinven, KKR and Providence acquiring 86% of Masmovil.
Investment flows to Australia fell 46 per cent to $22 billion but Israel recorded an increase from $18 billion to $26 billion and Japan from $15 billion to $17 billion, the report said.