Foreign Direct Investments in the Era of Pandemic: Perspectives for the Eurasian Region
Money growing in soil with house
Despite the fact that the severe acute respiratory syndrome (SARS) outbreak during 2002-2004 caused by the first known zoonotic coronavirus affected a relatively small number of people and countries, its negative impact on the financial flows, particularly Foreign Direct Investment (FDI), was well noticed by financial analysts, although the final figures for China, the country where the outbreak was first identified, might have been smoothened by the impressive economic growth of that period [Lee & Warner, 2008]. Nevertheless, it was evident by then that any potential outbreak of a SARS-like epidemic would not only redirect foreign investments from a particular country, but would also divert manufacturing operations as well [Knobler et al., 2004]. Needless to say that a full-fledged COVID-19 pandemic that is virtually affecting all corners of the world for almost two years was to have an even greater impact on international investment flows.
According to the official statistics of the United Nations Conference on Trade and Development (UNCTAD) global foreign direct investments flows plunged by 35 percent in 2020, the first full year of the COVID-19 pandemic, from 1.5 trillion USD to 1 trillion USD [UNCTAD, 2021a]. The initial UNCTAD reports from January 2021 were even more pessimistic, as the collapse of the global FDI was estimated to reach 42 percent from 1.5 trillion USD to 859 billion USD [UNCTAD, 2021b]. According to the World Bank’s FDI Watch for the third quarter of 2020, the FDI flows for developing countries in Europe and Central Asia, the World Bank’s regional designation to which both Kazakhstan and Russia belong, were down by 67 percent, compared with the same period in 2019, far below the global average of 42 percent [World Bank, 2021]. In fact, the overall decline of the global FDI collapse for 2020 was not far off from the predictions made in early 2020, as according to the Organisation for Economic Co-operation and Development (OECD) predictions, overall FDI flows were predicted to fall between 35 and 45 percent depending on optimistic, middle or pessimistic scenarios [OECD, 2020].
Towards the end of 2021, however, global FDI showed relatively strong recovery compared to 2020, as it reached 852 billion USD in the first half of 2021 alone, recovering 70 percent of the previous year’s losses [UN News, 2021]. While in 2020 developed economies suffered from the heaviest fall of FDI by 58 percent compared to only 8 percent fall in developing economies [UNCTAD, 2021a], in the first six months of 2021 FDI flows among developed economies reached 424 billion USD, more than three times than in 2020 [UN News, 2021].
According to the Economic and Social Commission for Asia and the Pacific (ESCAP) Foreign Direct Investment Trends and Outlook in Asia and the Pacific for 2021/2022, FDI inflows for the North and Central Asian subregion declined in 2020 by 59 percent from 43 billion USD to 17.5 billion USD, of which the biggest relative drops were in Azerbaijan (66 percent), Russia (70 percent), and Kyrgyzstan (259 percent) [ESCAP, 2021]. According to the World Investment Report 2021 the FDI flows in Uzbekistan and Turkmenistan, which, along with other Central Asian countries, are presented by UNCTAD as “Landlocked Developing Countries,” dropped 25.5 percent and 45.1 percent respectively [UNCTAD, 2021c]. Kazakhstan was the only country in the region to register investment growth in 2020, as according to different estimates the FDI flow into Kazakhstan increased by 24 percent [ESCAP, 2021] or even 34.9 percent [UNCTAD, 2021c]. The positive trend seemed to continue for Kazakhstan for the first six months of 2021 as well, since official governmental statistics estimated FDI growth of 30.4 percent for the above-mentioned period [Primeminister.kz, 2021]. In case of Turkmenistan, for instance, the drop in investment flows were partially associated with the fall in international demand for hydrocarbons, as well as postponing of branches of the Central Asia–China and Turkmenistan–Afghanistan–Pakistan–India gas pipelines [UNCTAD, 2021c].
Foreign investment flows remain a vital impetus for economic recovery in the post-pandemic world even for developed economies, as, for instance, only in the post-Brexit United Kingdom foreign investments created more than 55,000 new jobs in the 2020-2021 financial year alone [Gov.uk, 2021]. On the other hand, the COVID-19 pandemic negatively affected investment flows even for the most attractive investment destinations in 2020, as it happened to Chinese investments to Germany, which in 2019 prior to the pandemic reached an impressive 117 billion USD [Xia & Liu, 2021]. This, of course, goes hand in hand with the fall of the global economy by 4.4 percent in 2020 according to the International Monetary Fund (IMF), as recession and unemployment hit economies worldwide [Summerfield, 2021]. In any case, according to the mid-2021 reports, some of the negative effects on the investment flows were seen as short-term [Xia & Liu, 2021], while the overall FDI flow were expected to recover by 10 to 15 percent for 2021 [UNCTAD, 2021a], although the recent outbreak of the Omicron variant of the coronavirus and impending restrictions and lockdowns might substantially modify the expectations.
References
ESCAP (2021). Foreign Direct Investment Trends and Outlook in Asia and the Pacific for 2021/2022. Retrieved from https://www.unescap.org/sites/default/d8files/knowledge-products/APTIT%20FDI_20212022.pdf. Accessed on 03.01.2022.
Gov.uk (2021). Foreign investment boosts UK jobs during pandemic. Retrieved from https://www.gov.uk/government/news/foreign-investment-boosts-uk-jobs-during-pandemic. Accessed on 02.01.2022.
Lee, O. & M. Warner (2020). The Political Economy of the SARS Epidemic. The Impact on Human Resources in East Asia. Routledge.
OECD (2020). Foreign direct investment flows in the time of COVID-19. Retrieved from https://read.oecd-ilibrary.org/view/?ref=132_132646-g8as4msdp9&title=Foreign-direct-investment-flows-in-the-time-of-COVID-19. Accessed on 03.01.2022.
Primeminister.kz (2021). Retrieved from https://primeminister.kz/ru/news/obem-pii-v-ekonomiku-rk-za-pervoe-polugodie-2021-goda-uvelichilsya-na-304-593353. Accessed on 02.01.2022.
Stacey K., Adel M., Stanley L., Alison M., Laura S., Katherine O. (2004). Learning from SARS. Preparing for the Next Disease Outbreak. The National Academies Press.
Summerfield, R. (2021). FDI in a post-COVID-19 world. Financier Worldwide. Retrieved from https://www.financierworldwide.com/fdi-in-a-post-covid-19-world#.YdGNSWhByMo. Accessed on 02.01.2022.
UN News (2021). In highly uneven recovery, global investment flows rebound. Retrieved from https://news.un.org/en/story/2021/10/1103402. Accessed on 03.01.2022.
UNCTAD (2021a). Global foreign direct investment set to partially recover in 2021 but uncertainty remains. Retrieved from https://unctad.org/news/global-foreign-direct-investment-set-partially-recover-2021-uncertainty-remainst. Accessed on 02.01.2022.
UNCTAD (2021b). Investment Trends Monitor. Issue 38. Retrieved from https://unctad.org/system/files/official-document/diaeiainf2021d1_highlight_en.pdf. Accessed on 02.01.2022.
UNCTAD (2021c). World Investment Report 2021. Investing in Sustainable Recovery. Retrieved from https://unctad.org/system/files/official-document/wir2021_en.pdf. Accessed on 02.01.2022.
World Bank (2021). FDI Watch. Quarterly Report, Issue 2. Retrieved from https://documents1.worldbank.org/curated/en/166491617024998011/pdf/FDI-Watch-Quarterly-Report.pdf. Accessed on 02.01.2022.
Xia, X. & W. Liu (2021). China’s Investments in Germany and the Impact of the COVID-19 Pandemic. Retrieved from https://www.intereconomics.eu/contents/year/2021/number/2/article/china-s-investments-in-germany-and-the-impact-of-the-covid-19-pandemic-6523.html. Accessed on 02.01.2022.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.
Zharmukhamed Zardykhan
Senior Research fellow
Dr. Zardykhan had completed his Ph.D. dissertation in 2007 at Bilkent University on Pan-Islamic appeals and Holy war propaganda in Ottoman-Russian confrontation during the First World War. He holds two MA degrees from Bilkent University and Central European University. His primary research interests include Eurasian history, Middle East Politics, International Security, Ethnic and Religious conflicts, nationalism and identity formation, and he had published in several prominent journals including Middle Eastern Studies, Asian Ethnicity and Central Asian Survey.
