Foreign Direct Investment drops in 2020
(Global foreign direct investment flows ebbed to a 15-year low last year)

Global FDI flows plummeted in 2020

China overtook the United States as the world's top destination for foreign direct investment (FDI) in 2020.

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Global Foreign Direct Investment (FDI) flows dropped 38% in 2020 to $846 billion, the lowest level since 2005, new OECD data and analysis show. That represented only 1% of world GDP, a level not seen since 1999, according to the Paris-based Organisation for Economic Cooperation and Development.

Inflows to the OECD area dropped 51% to $389 billion , partly due to significant divestments from Switzerland and the Netherlands (e.g. sales of existing stakes in companies residing in these two countries by foreign parents). Negative intra-company debt flows further accentuated the drop in total FDI flows, the global policy forum said.

Foreign Direct Investment inflows fell also considerably in Ireland ($48 bn), the United Kingdom ($26 bn) and Canada ($24 bn) FDI flows to EU27 countries fell by 70%, mostly due to divestments from the Nethelands and decreases that surpassed $10 billion in a number of EU countries.

FDI inflows to G20 economies decreased by 28%. They dropped by 40% in OECD G20 economies and only 9% in non-OECD G20 economies, due to rebounds in China and India later in the year. China, one of the few major economies to successfully navigate the economic fallout in the turbulent year, overtook the United States as the top destination. India and Luxembourg (excluding resident Special Purpose Entities (SPEs) trailed them as large FDI recipients.

OECD’s FDI figures echoed a report by the United Nations Conference on Trade and Development (UNCTAD) earlier this year, which also found China became the top investment destination worldwide in 2020. Of note, China saw its GDP increase 2.3% year on year last year.

Top 3 Foreign Direct Destinations 2020
(Source: OECD)

Outflows

Outflows from the OECD area decreased by 48% to $425 billion, their lowest level since 2005, also largely influenced by major divestments by companies in the Netherlands.

EU27 outflows decreased by 77%, accounting for only 13% of global FDI outflows in 2020, compared to more than 30% in 2019 and 2018. FDI outflows from the G20 economies decreased by 43%. They dropped by 41% in OECD G20 economies and 49% in non-OECD G20 economies. This last decrease was experienced across the board, except in Indonesia where FDI outflows grew by 33%.

Luxembourg, the United States and Japan were the largest sources of FDI outflows. The United States has remained largely stable but Japan, and China, which follows, have seen a reduction of their FDI outflows in 2020. Similar to the behaviour observed during the global financial crisis, both FDI income paid by affiliates in OECD countries to foreign parents, and FDI income received by OECD parents, decreased by around 15% in 2020.

The recovery in cross-border M&A activity, which started in the second half of 2020 and continued through the first quarter of 2021 in advanced economies, as many companies turned to international transactions emboldened by lower borrowing costs and an expected drop in acquisition prices, could boost Foreign Direct Investment equity and total flows in 2021, the OECD said. However it warned that if new and large divestments persist this year they could contribute to keeping low levels of FDI equity flows.