India jumped one notch up to attain the seventh position among top recipients of foreign direct investment (FDI) in calendar year 2021 even as flows shrank to $45 billion from $64 billion in 2020, the United Nations Conference on Trade and Development (UNCTAD) said on Thursday.
In its World Investment Report, the agency said that global FDI recovered to pre-pandemic levels in 2021 reaching nearly $1.6 trillion but this course is unlikely to be sustained in 2022.
“Flows to India declined to $45 billion. However, a flurry of new international project finance deals were announced in the country: 108 projects, compared with 20 projects on average for the last 10 years. The largest number of projects (23) was in renewables. Large projects include the construction in India of a steel and cement plant for $13.5 billion by Arcelormittal Nippon Steel (Japan) and the construction of a new car manufacturing facility by Suzuki Motor (Japan) for $2.4 billion.
“FDI in China grew 21% and in Southeast Asia by 44% but South Asia went the other way, falling 26% as flows to India shrank to $45 billion.
Outward FDI from South Asia, mainly from India, rose 43% to $16 billion.
The top 10 economies for FDI inflows in 2021 were the US, China, Hong Kong, Singapore, Canada, Brazil, India, South Africa, Russia and Mexico but among them only India witnessed a decline in inflows.
The top recipient of FDI was the US at $367 billion followed by China at $181 billion and Hong Kong at $141 billion.
China, Hong Kong, Singapore, India, the United Arab Emirates and Indonesia accounted for more than 80% of FDI to South Asia.
Developing Asia which received 40% of global FDI, saw flows rise in 2021 for the third straight year to an all-time high of $619 billion.
Sectoral performance
International project finance announcements in industrial real estate grew in 2021 and deal numbers tripled to 152 projects with a value of $135 billion. Large projects include the construction of a steel and cement manufacturing plant in India for $14 billion.
Of R&D investment in developing economies, India captured almost half of all projects, UNCTAD said.
American digital MNEs targeted India in 8% of the deals, mostly buying minority stakes to gain access to the market and to local innovative solutions.
“For example, eBay (US) jointly with Microsoft (US) and Tencent (China), acquired an undisclosed minority stake in online retailer Flipkart (India), for $1.4 billion in 2017. Similarly, Paypal (US) acquired undisclosed minority stakes in a range of Indian companies across several industries, including software providers, online brokerage systems, professional services and electronic payments (Moshpit Technologies, Speckle Internet Solutions, Scalend Technologies, Freecharge Payment Technologies),” UNCTAD said in the report.!
As per the report, the four Chinese companies in the ranking accounted for 11% of the deals and invested a relatively higher share in developing-economy MNEs (34%) than their developed counterparts did.
“They invested especially in Asia, with shares divided equally between India and South-East Asia,” it said.
Despite positive developments in recent years in a few leading emerging markets such as Brazil, China, India, South Africa and some economies in the Association of Southeast Asian Nations, sustainable funds remain largely a developed-market phenomenon.
As an expert in international economics and foreign direct investment (FDI), my extensive knowledge and experience in the field allow me to dissect the complexities of the recent developments outlined in the provided article. With a keen eye for details and a broad understanding of global economic trends, I'll delve into the key concepts and provide insights to help you comprehend the nuances of the information presented.
1. Foreign Direct Investment (FDI):
- FDI refers to the investment made by a foreign entity in the business operations and assets of a host country. It typically involves the acquisition of a significant ownership stake, allowing the foreign investor to have a substantial degree of control.
2. UNCTAD World Investment Report:
- The United Nations Conference on Trade and Development (UNCTAD) publishes the World Investment Report, which serves as a comprehensive analysis of global FDI trends. This report is a crucial resource for understanding the dynamics and patterns of international investments.
3. India's FDI Ranking in 2021:
- India secured the seventh position among the top recipients of FDI in 2021, climbing one notch from the previous year. This indicates a certain level of attractiveness for foreign investors despite a decline in FDI inflows from $64 billion in 2020 to $45 billion in 2021.
4. Global FDI Trends in 2021:
- According to UNCTAD, global FDI rebounded to pre-pandemic levels in 2021, reaching nearly $1.6 trillion. However, the report suggests that sustaining this recovery might be challenging in 2022.
5. Project Finance Deals in India:
- Despite the decrease in FDI inflows, India experienced a surge in new international project finance deals, with 108 projects announced in various sectors. Notably, the renewables sector attracted the highest number of projects (23).
6. FDI Performance in South Asia:
- While FDI in China and Southeast Asia grew, South Asia, led by India, experienced a 26% decline in FDI flows, reaching $45 billion. However, outward FDI from South Asia, primarily from India, rose by 43% to $16 billion.
7. Top 10 Economies for FDI Inflows:
- The top 10 economies attracting FDI inflows in 2021 were the US, China, Hong Kong, Singapore, Canada, Brazil, India, South Africa, Russia, and Mexico. Notably, only India witnessed a decline in FDI inflows among these economies.
8. Sectoral Performance and R&D Investments:
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The industrial real estate sector saw significant growth in international project finance deals, with 152 projects valued at $135 billion. India played a notable role, hosting large projects such as the construction of a steel and cement manufacturing plant.
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India captured almost half of all research and development (R&D) investment projects in developing economies, indicating its growing significance in innovation and technological advancements.
9. Digital MNEs Targeting India:
- American digital multinational enterprises (MNEs) targeted India in 8% of their deals, often acquiring minority stakes to access the market and leverage local innovative solutions. Examples include eBay, Microsoft, and Tencent's investment in Flipkart.
10. Chinese Companies in Developing Economies:
- Four Chinese companies accounted for 11% of deals, investing a relatively higher share (34%) in developing-economy MNEs compared to their developed counterparts. Their investments were notably distributed between India and Southeast Asia.
11. Sustainable Funds Landscape:
- Despite positive developments in leading emerging markets, sustainable funds remain primarily a phenomenon in developed markets. This suggests that environmental, social, and governance (ESG) considerations in investment decisions are more prevalent in developed economies.
In summary, the dynamics of FDI, as outlined in the UNCTAD World Investment Report, highlight India's position, global trends, sectoral performances, and the role of major players, both American and Chinese, in shaping the international investment landscape. The information presented underscores the intricate interplay of economic factors influencing FDI flows on a global scale.
