Letter IEDI n. 1020–Brazil in the FDI world ranking
In 2019, global foreign direct investment (FDI) flows recovered after two consecutive years of decline. Inward flows rose +3%, according to the most recent survey by UNCTAD (United Nations Conference on Trade and Development). This positive movement, however, is unlikely to resist the COVID-19 pandemic.
For 2020, UNCTAD projects sharp declines for FDI inflows, between -30% and -40%, from the US$ 1.54 trillion registered in 2019 to something between US$ 920 billion and 1.08 trillion. This expected performance only worsens pre-pandemic projections, which were of stagnation (-3% in 2020 and +1% in 2021), associated with political and commercial tensions in the world.
In 2019, before the coronavirus crisis, the USA were in first place in the inflow ranking, followed by China, Singapore, the Netherlands and Ireland. Brazil was the 6th, receiving the equivalent to US$ 72 billion and, even with an increase of +20% in relation to 2018, it fell one place in the ranking.
Among the largest sources of FDI, Japan continued to record the highest outflow of resources, sending US$ 227 billion to other countries in 2019. The USA and the Netherlands were 2nd and 3rd, respectively. China fell from 2nd in 2018 to 4th due to fewer M&A transactions (lowest level in 10 years). Brazil was among the 20 countries with the largest outflows of FDI, with US$ 16 billion.
According to UNCTAD, in 2020 all regions and economic groups inside countries will see falls in inward FDI. Developed economies are expected to decline between -25% and -40%, being overcome by the decrease in developing economies: about -30% to -45%, as they are more exposed to systemic risks due to their greater productive and financial dependence.
In addition, in the institution's view, the more restricted fiscal space in emerging markets should reduce the magnitude of countercyclical policies and measures, which are essential to trigger a more robust economic recovery.
In the long run, UNCTAD says that developing economies may also be negatively affected by the reshoring or verticalization of international production arising from a structural response to the COVID-19 crisis, which exposed weaknesses in the organization of world production in global value chains.
For Latin America and the Caribbean, investment flows are expected to halve in 2020 compared to the US$ 164 billion received last year. The pandemic arrived relatively late in the region and aggravated both political and social unrest and structural weaknesses, causing a deep recession and significant contraction in foreign investment. In particular, in the first quarter of 2020 Brazil reported flows of direct investment in equities equivalent to less than 50% of last year's quarterly average.