Globalisation
“to a degree” the country’s success in containing its initial Covid outbreak and preventing further surges, which enabled a rapid recovery after severe first quarter lockdowns. Though South East Asia, a driver of global FDI growth for the past decade, also performed well in suppressing Covid, its inflows contracted by 25% to $136bn.
Mike Pfister (pictured) argues that developing Asia was better equipped to respond to Covid-19 than the rest of the world.
35% 53.6%
The percentage fall in global FDI flows in 2020.
The percentage share of global FDI that flowed into developing Asia in 2020, up from 33.7% in 2019.
World Investment Report 2021 34
stretched by the pandemic, while enlarged public purses enabled governments to prop up locked-down economies for extended periods. “Had this crisis happened in 2005, it would have been a lot worse, simply because we hadn’t had that prior financial crisis to help us weather the regulatory shocks and deliver economic support packages better,” says Pfister. Unfortunately, the public doesn’t necessarily see it that way. In Europe and the US, in particular, the financial crash and great recession convinced many that the hapless politicians in their midst cared more for financial institutions than people. By contrast, Pfister adds, East and South East Asian populations look back on the latter stages of the Sars response as an example of public-spirited government competence. Having lived through one coronavirus, they were more willing than their counterparts elsewhere to comply with similar instructions for suppressing another. As Pfister puts it: “In general, they trusted that their governments would basically do their best to find solutions and tackle the crisis through testing and tracing [...] which worked extremely well in Asia.” Indeed, according to the WIR breakdown, flows to developing East Asia increased by 21%, to $292bn. China, the original epicentre of both SARS and Covid, attracted $149bn of that total, a 6% increase on the previous year. In Hong Kong, which is counted separately, FDI inflows shot up 62% to $119.2bn from the anomalously low numbers recorded in 2019. Meanwhile, the figure for South Asia also rose by 20% to $71bn, driven almost entirely by a rise in flows involving India. In the subcontinent, investment jumped 27% to $64.1bn.
Keep your friends close Clearly, the region’s resilience has been driven by the robust performance of its largest economies. But these do not map exactly onto the impacts of the pandemic. In the WIR’s terms, the positive figures for China reflect
In fact, excluding Hong Kong, which, as the WIR makes clear, traditionally accounts for sizable conduit flows, FDI in developing Asia actually fell by 6% ($26bn) in 2020. Elsewhere, the liquidation of several large holding companies, corporate reconfigurations and intra-firm financial flows in the Netherlands, which operates similarly in Europe, accounted for nearly one-third of the $500bn global FDI drop. “Excluding the effects of conduit flows, one-off transactions and intrafirm financial flows,” the WIR notes, “the global decline was slightly more moderate (about 25%) and uniform.” But those 19 percentage points are still significant. A drop of 6% is still a more positive figure than the WIR records for any grouping except the least developed economies, where FDI “remained practically unchanged in 2020, largely due to developments in Angola”. For Pfister, the poster child of this more modest Asian resilience story is Vietnam, where international investment remained stable through 2020, earning it a spot in the top 20 countries for incoming FDI. “Investors often say that ‘capital is a coward’, and the same applies here,” he explains. “When the investment environment is shaky, when there’s low trust in the government, investment flows are going to suffer.” By contrast, “any well-run economy where there’s good trust in government and you’re seeing positive results from government actions has one of the critical preconditions for investment flows and quality investment.” There, Vietnam’s success was twofold. As well as limiting Covid infections and deaths in 2020, the government took decisive actions to keep companies hit hard by lockdowns afloat. “And they weren’t just catering to the domestic market,” adds Pfister. “They also supported those that were involved in global and regional value chains. That really added to the trust in the government, which is an extremely important ingredient for recovery and growth going forward.” That’s particularly true when it comes to longer- term greenfield investments and international project finance deals. Despite the greater FDI falls in other South East Asian countries, together they attracted over $68bn of greenfield investment projects – more than anywhere else. That indicates, in the WIR’s words, “MNEs strong investment commitment to the region”. International project finance deals for renewable energy in the area also rose to $33bn, with Vietnam accounting for more than 40% of all projects involving wind and solar plants.
Finance Director Europe /
www.ns-businesshub.com
OECD
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