The outbreak and spread of Covid-19 caused a massive drop in global FDI in 2020. The most recent UNCTAD figures, although preliminary, confirm our most pessimistic forecasts, with a 42% decline in global FDI inflows to a level of $850 billion.
A 40% drop, from $1.5 trillion in 2019 to $850 billion in 2020, is comparable in relative terms to that experienced in the two years (2008 and 2009) following the global financial crisis (GFC). Yet, in 2009 at their lowest level after the GFC ($1.2 trillion), global FDI were one third higher than current levels.
The pandemic has collided with an FDI context that was already struggling. Since the most recent peak in 2015, at a value of $2 trillion, growth in global FDI was consistently negative for three years (2016 to 2018) and substantially stable in 2019. Global FDI flows had decreased by some 25% between 2016 and 2019, before the pandemic caused a further, sharper decline. As a result, between 2015 and 2020 global FDI more than halved their value, a major drop mainly due to the Covid-19 shock, but also to a longer-term declining trend (figure 1).
Figure 1. Global FDI inflows, 2015-2019 and 2020-2022 forecast (trillions of dollars)
Source: UNCTAD World Investment Report 2020
After the pandemic, an uncertain outlook
The outlook beyond 2020 is highly uncertain and challenging. 2021 will still likely be a negative year, or at best transitory, with FDI unlikely to rebound before 2022. In the long run, however, a full comeback to historical values is not taken for granted. After the Covid-19 shock, the trend in FDI may enter a phase of gradual stabilization at long-term levels structurally lower than before the pandemic, as a consequence of technological developments, protectionist measures and the call to switch to more resilient and locally-focused supply chains.
From a development perspective, the prospects of poorer countries will be particularly impacted by downward pressure on efficiency-seeking FDI, traditionally the main route into global production networks for low-income countries.
Governments will be confronted with the “old” issue of attracting FDI for sustainable development within the “new” context of a redefining globalisation. Faced by unprecedented challenges, investment policymakers and Investment Promotion Agencies (IPAs) will be forced to fundamentally re-think their strategies, focusing on key strategic opportunities to revive FDI in the short term and to sustain them longer terms. These opportunities arise from the expected transformation of international production, as a result of long-term technological, policy and sustainability trends, in synergy with a revived emphasis on supply chain resilience from business executives.
1. Regional FDI
Momentum for regional FDI is high and is expected to grow further over the next years as a consequence of the pandemic. Policy pressures for regional strategic autonomy, business resilience considerations and the public push for sustainability will lead global MNEs to replicate value chains at the regional level, or otherwise, will stimulate the growth of indigenous MNEs structuring their operations near-shore.
2. Market-seeking FDI
The weight of factor cost differentials in FDI decisions will become smaller, with efficiency-seeking FDI giving leeway to the expansion of market-seeking FDI. The value driver in international investment will progressively shift from mass production and economies of scale to mass-customization and economies of scope.
3. Resilience-seeking FDI
Multi National Enterprises (MNEs) are expected to (at least) partially relocate FDI, particularly from Factory Asia to alternative low-cost manufacturing hubs, with the specific purpose of risk-diversifying their production networks. These moves would trigger a post-Covid generation of resilience-seeking FDI – a novel category adding to the standard types (resource-seeking, efficiency-seeking, market-seeking, etc).
4. FDI in infrastructure
FDI in infrastructures are likely to gain a central stage, bridging the two “imperatives” of the coming decade: the resilience imperative (Covid-related) and the sustainability imperative (SDG-related). Supported in developed economies by massive stimulus packages, infrastructure investment will immediately support domestic recovery by boosting local economies and employment. In the medium to long term, investment in infrastructures will make it possible to build more resilient local and regional ecosystems, physically and digitally integrated, as well as foster a more sustainable environment.
5. Green FDI
Environmental degradation and the fight against climate change are pushing MNEs to fully comply with the sustainability imperative. The environmental vulnerabilities exposed by the pandemic and the approach of the 2030 term for the achievement of the SDGs will add further political and public pressure. Multinational businesses will then increasingly target the green economy not only as an attractive venue for FDI growth but also as a major opportunity for FDI upgrading and value-creation.
 UNCTAD, Global Investment Trend Monitor (January, 2021)
 See UNCTAD World Investment Report 2020 “International Production Beyond the Pandemic”; chapter I.A
 See among others executive surveys by Capgemini “Fast Forward. Rethinking supply chain resilience for a post-COVID-19 world” and IBM Global Location Trends “2020 Special Edition: Location strategy in a post-COVID-19 world”.