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Info Service on WTO and Trade Issues (Jan23/02) Geneva, 18 Jan (Kanaga Raja) A multitude of crises on the global stage, namely, the war in Ukraine, food and energy prices, financial turmoil and debt pressures, has inevitably affected global foreign direct investment (FDI) in 2022, the UN Conference on Trade and Development (UNCTAD) has said. In its latest Investment Trends Monitor (Issue No. 44), UNCTAD said that new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions (M&As), all shifted in reverse after Q1. Project finance and M&As were especially affected by deteriorating financing conditions, rising interest rates and growing uncertainty in financial markets, it added. Cross-border M&A sales were 6% lower worldwide and more than 50% lower in the United States, the largest M&A market, said UNCTAD. According to the UNCTAD report, preliminary data on greenfield project announcements in 2022 still show growth of 6% due to continued momentum in the first part of the year. Values increased significantly (+54%) because of several mega-projects and a shift from project to corporate financing in the renewables sector leading to an increase in average project size, it said. UNCTAD explained that due to changing financing conditions in 2022, international project finance, normally the preferred financing option for large projects, partly gave way to financing by individual firms leading to a shift from IPF to greenfield. Highlighting some investment trends in selected economies in 2022, UNCTAD said that in the United States, the value of M&A sales, which normally accounts for a large share of its FDI inflows, fell by 53%. In Europe, new greenfield project announcements were down (-15%), with declines across most large economies with the exception of Italy (+11%). China reported a decline in the number of new greenfield project announcements of 31%, although international project finance numbers were up (+11%). UNCTAD said that India was the rare exception to the overall gloomy trend, with a doubling of new greenfield project announcements and a 34% increase in international project finance deals. ASEAN (Association of South-East Asian Nations) economies reported sharply lower cross-border M&A sales (-74%), which may result in lower FDI values for the year, but new greenfield project announcements remained strong (+21%). In Brazil, the number of new greenfield announcements increased by about one third, but international project finance deals were down by 17%, said UNCTAD. As regards the sectoral distribution of greenfield mega-projects announced in 2022 that illustrates key trends in cross-border investment, UNCTAD said that three of the 10 largest announcements concerned chip factories, in response to global shortages and supply chain restructuring trends. Six of the top 10 project announcements were in renewables, with four announcements in Egypt showing how COP 27 (Conference of the Parties to the UNFCCC) motivated several investors to announce large projects, it added. While the higher number of greenfield mega-projects in renewables is encouraging, international project finance in the sector the bulk of climate change mitigation investment in recent years is suffering, said UNCTAD. IPF numbers in renewables declined by 5% and values by almost 40%, it added. As a result, overall international investment in climate change mitigation and adaptation shrank by more than 9% in terms of announced values and by 6% in project numbers, said the report. In contrast, several large projects in extractive industries, coal, oil and gas, were announced against the backdrop of the ongoing energy crisis, it added. UNCTAD said that looking at SDG (Sustainable Development Goal) investment sectors beyond climate change mitigation and adaptation, the recovery after the 2020 slump remains fragile. The report said in developing countries, the number of projects across all SDG sectors (including sustainable infrastructure, food security, water and sanitation (WASH), and health, among others) increased by just 3% while values shrank slightly. The increase in numbers was due mostly to relatively small greenfield projects in transportation. International investment in agriculture and agribusiness, including fertilizers, remained stagnant at low levels. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession, said UNCTAD. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI, it added. +
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