- Global foreign direct investment rebounded strongly in 2021, but the recovery is highly uneven
- DG Okonjo-Iweala calls on ministers to step up negotiating efforts, harvest outcomes
- DDG González: Now is the time to think big on customs reform
Global foreign direct investment rebounded strongly in 2021, but the recovery is highly uneven
New UNCTAD estimates show that infrastructure finance is up due to recovery stimulus packages, but greenfield investment activity remains weak across industrial sectors.
Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated $1.65 trillion, from $929 billion in 2020, surpassing their pre-COVID-19 level, according to UNCTAD’s Investment Trends Monitor published on 19 January.
“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key Sustainable Development Goals (SDG) sectors – such as electricity, food or health – is a major cause for concern,” said UNCTAD Secretary-General Rebeca Grynspan.
Biggest rise in developed economies
Developed economies saw the biggest rise by far, with FDI reaching an estimated $777 billion in 2021 – three times the exceptionally low level in 2020, the report shows.
Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or almost three quarters, was recorded in developed economies. Developing economies, especially least developed countries (LDCs), saw more modest recovery growth.
Strong investor confidence in infrastructure sectors
The report says investor confidence is strong in infrastructure sectors, supported by favourable long-term financing conditions, recovery stimulus packages and overseas investment programmes.
International project finance deals were up 53% in number and 91% in value, with sizeable increases in most high-income regions and in Asia and Latin America and the Caribbean.
In contrast, investor confidence in industry and global value chains remains weak. Greenfield investment project announcements were practically flat (-1% in number, +7% in value). The number of new projects in global value chains (GVCs)-intensive industries such as electronics fell further.
Recovery in development sectors remains fragile
The recovery of investment flows to sectors relevant to the SDGs in developing economies, which suffered significantly during the pandemic with double-digit declines across almost all sectors, remains fragile.
Looking at investment trends in LDCs through the lens of productive capacity development highlights structural weaknesses and shows that several sectors have been hit hard by the pandemic.
Investment projects important for private sector development and structural change have partly dried up – exacerbating the downturn in natural capital (extractive) projects, traditionally an important part of investment in many LDCs.
Positive outlook for 2022
The outlook for global FDI in 2022 is positive, according to the report. The 2021 rebound growth rate is unlikely to be repeated.
The underlying trend – net of conduit flows, one-off transactions and intra-firm financial flows – will remain relatively muted, as in 2021. International project finance in infrastructure sectors will continue to provide growth momentum, the report projects.
The protracted duration of the health crisis with successive new waves of the pandemic continues to be a major downside risk.
The pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty.
Other important risks, including labour and supply chain bottlenecks, energy prices and inflationary pressures will also affect results.
DG Okonjo-Iweala calls on ministers to step up negotiating efforts, harvest outcomes
Director-General Ngozi Okonjo-Iweala on 21 January called on ministers from a cross-section of WTO members to push ahead in all ongoing negotiations, and work with “pragmatism, creativity, and flexibility” to harvest agreements as and when they are within reach. Ministers broadly accepted her suggestion to accelerate work, both in Geneva and in capitals, so WTO members can deliver results despite the uncertainty regarding the rescheduling of the 12th Ministerial Conference (MC12) following its Omicron-induced postponement in November.
The informal gathering of around 30 trade ministers is traditionally hosted by the Swiss government in Davos but was held virtually this year in line with the World Economic Forum’s decision to cancel its in-person annual meeting.
In her remarks to the event, the Director-General noted that pandemic-related uncertainty would continue to prevail so long as large numbers of people in much of the world remained unvaccinated against COVID-19 — and that the WTO had a contribution to make in ending vaccine inequity. She said that while the desire to hold an in-person MC12 was widely shared, the changing epidemiological conditions made it difficult to set a date at this time.
DG Okonjo-Iweala said the Secretariat was preparing for all possible scenarios for holding a meeting: short, medium and long-term. In the meantime, instead of focusing on when to hold a ministerial, she urged ministers to focus on delivering results that would benefit people around the world.
To this end, DG Okonjo-Iweala encouraged ministers to empower their ambassadors in Geneva to make political compromises and narrow outstanding gaps. She called for members to take advantage of hybrid and virtual meeting formats to have capital-based technical experts participate in real time, which has already been happening in the fisheries subsidies negotiations.
The Director-General called ministers’ attention to the key sticking points on the WTO’s response to the pandemic, fisheries subsidies and agriculture, while also making the case for moving ahead with WTO reform, including dispute settlement.
DDG González: Now is the time to think big on customs reform
“Customs has a key role in making trade seamless, safe and secure,” stated WTO Deputy Director-General Anabel González at a 20 January hearing of the European Union’s Wise Persons Group on Challenges Facing the Customs Union.
DDG González observed that customs authorities need to respond and adjust to changes in the global trade landscape brought about by the COVID-19 pandemic, rapid technological developments, geopolitical tensions and climate change. She added that the role of customs was becoming increasingly complex, and that customs officials were being continuously asked to do more in areas ranging from product and food safety standards, climate, deforestation and endangered species to veterinary regulations, fake goods, drug precursors and even labour standards and human rights.
DDG González emphasized that customs practices must be more nimble, innovative and forward-looking to meet the challenges of the 21st century and stay ahead of the curve. While e-commerce provided new export opportunities for small businesses, a wider choice and lower prices for consumers, customs administrations everywhere were being stretched thin by the massive increase in the quantity of e-commerce parcels, she noted
DDG González said customs reform needs to focus on better coordination with other agencies, expanded use and analysis of data and modern technologies, closer partnerships with supply chain participants and greater cooperation with third countries. She also said that the WTO Agreement on Trade Facilitation provided a useful framework to modernize customs.
The EU Wise Persons Group — chaired by Ms Arancha González Laya, former Minister of Foreign Affairs, European Union and Cooperation of Spain — consists of 12 high-level members tasked to develop innovative ideas on the future of the EU Customs Union.
DDG González said that the European Union Customs Union, as the most advanced customs union in the world, was well positioned to address these challenges and show the way ahead, given its long history of cooperation and sharing of common experiences among its member states.