The pandemic caused collapse in investment flows to sectors relevant for Sustainable Development Goals in developing countries, flags report
The foreign direct investment (FDI) flows dropped globally by 35 per cent to $1 trillion — from $1.5 trillion in 2019 — according to a recent report.
Lockdowns caused by the novel coronavirus disease (COVID-19) pandemic around the world slowed down existing investment projects, said United Nations Conference on Trade and Development (UNCTAD).
In developing countries, the number of newly announced greenfield projects fell by 42 per cent and international project finance deals which are important for infrastructure declined by 14 per cent, according to the report.
The report, titled World Investment Report 2021, reviewed investment in the United Nations-mandated Sustainable Development Goals (SDG), stating that the pandemic caused a collapse in investment flows to sectors relevant for SDGs in developing countries.
James Zhan, UNCTAD’s director of investment and enterprise, said:
“The coronavirus pandemic has amplified the fragilities of the structurally weak economies. Investment in various sectors relevant for achieving the SDGs, especially in food, agriculture, health and education has been falling.”
SDG investment trends in developing economies
The COVID-19 pandemic is exacerbating the SDG investment gap, particularly in the least developed countries and other structurally weak economies.
SDG-relevant greenfield investment in developing regions is now 33 per cent lower than before the pandemic and international project finance is down by 42 per cent. This decline is much larger in developing countries than in developed countries.
Gains in investment in renewable energy and digital infrastructure in developed economies reflect the asymmetric effect that public support packages will have on global SDG investment trends.
The drop in foreign investment may reverse the progress achieved in promoting SDG investment in recent years, posing a risk to delivering the 2030 agenda for sustainable development and to sustained post-pandemic recovery, said UNCTAD.
Greenfield and project finance investment activity fell markedly, with all but one of the SDG investment sectors (renewable energy) registering double-digit declines from the pre-COVID-19 level, the report found.
The value of international project finance announcements was 26 per cent lower in infrastructure, including energy, telecommunication and transport and 14 per cent lower in renewable energy, compared to 2019.
The decline was mainly due to the absence of large projects, as the number of transactions increased by 15 per cent and 13 per cent respectively.
In SDG-related sectors, landlocked developing countries attracted a smaller number of international deals compare to 2019. Infrastructure investment deals declined (from six to four), but their value swelled more than fivefold, driven by an $11 billion transport project in Zambia and two coal-fired power projects (for a total of $2.6 billion) in the Lao People’s Democratic Republic.
Greenfield project announcements dried up in most small island developing states and only three deals were announced in cross-border project finance.
All indicators suggested a downward trend in investment commitments in SDG-related sectors.
The sustainable investment market can expect to see further acceleration of growth in the coming years. By 2025, the sustainable bond market could reach 5 per cent of the total global market, which would bring over $6 trillion of new investments in SDG sectors.
UNCTAD, along with partners, will launch the UN Global Sustainable Finance Observatory in October 2021, which will bring together the global investment-for-development community, including all capital market stakeholders along the global investment chain.
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