Economy

Coronavirus may eat into global FDI flow, predicts UNCTAD

FDI flows across the world will witness a sharp decline of 5-15 per cent

 
By DTE Staff
Published: Monday 09 March 2020
Over 109 nations were affected by the novel coronavirus (COVID-19) outbreak as of March 9, 2020 Photo: Wikimedia Commons

Foreign direct investment (FDI) flows across the world will witness a sharp decline of five to 15 per cent because of the global novel coronavirus (COVID-19) outbreak, according to a report. The United Nations Conference on Trade and Development (UNCTAD) — in its assessment published on March 4, 2020 — said the decline would be restricted to five per cent if the outbreak was controlled.

However, the fallout would be much more if the outbreak was not reigned in, according to the report.

The severity of the outbreak in a country would determine the impact on its FDI flows, the report said. FDI inflows would be impacted because of supply chain disruptions.

More than 109 nations were affected by the outbreak as of March 9, 2020, according to the Johns Hopkins Coronavirus Resource Center. South Korea, Italy and Iran were the worst hit after China.

The number of infected went up to 40 in India, after one more case was reported in Kerala on March 9.

The impact on business because of the COVID-19 outbreak would also be felt by more than two-thirds of the top 100 multinational enterprises (MNEs), who issued statements to this effect, according to the report.

The average earning revisions for MNEs would be minus 16 per cent in the developed world and minus six per cent in the developing world, according to the report.

Asia would bear the brunt of this because global value chains centred around China, South Korea and Japan would cause the biggest disruptions, the report said.

Sectors that may be hit by COVID-19

Sector

Average earning revisions

Companies with earning revisions

Automobiles and auto parts

- 44 per cent

142

Airlines

- 42 per cent

45

Hotel, restaurants and leisure

-21 per cent

111

Consumer cyclicals

-16 per cent

671

Basic materials

-13 per cent

389


Source: UNCTAD

Energy, technology, telecommunication services sectors will also be affected by the outbreak, according to the report.

The impact on ongoing greenfield projects (those starting from scratch) would be limited, according to the report. However, announcements of new projects would be delayed.

Mergers and acquisitions will also witness slowdowns, according to the report.

“Market-seeking investment and FDI projects in extractive industries could be delayed worldwide as a result of negative demand shocks,” the report said, giving the example of carmaker Toyota, which reported a 70 per cent drop in sales in China.

The impact was already visible in major markets beyond China, especially in industries such as tourism and retail, the report said. 

Major disruptions were earlier reported by the International Monetary Fund (IMF) and other consultancy groups.

China’s economic growth would be affected in the first three months of 2020 even if disruptions from the outbreak end, Kristalina Georgieva, the managing director of IMF, wrote in her blog on February 2020.

Global gross domestic product growth would decline by 2.3 per cent from 2.5 per cent, according to an estimate by consultancy group Oxford Economics in February 2020.

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