The outbreak and spread of coronavirus (COVID-19) will negatively affect global foreign direct investment (FDI) flows with Nigeria and other countries losing between 30 and 40 per cent of their 2019 earnings, the United Nations Conference on Trade and Development United Nations (UNCTAD) has said.
The United Nations agency stated this in a statement, ‘Impact of the COVID-19 Pandemic on Global FDI and GVC,’ issued on Thursday.
Nigeria’s total FDI flows in 2018 was USD 1.9 billion. The total figure for 2019 is not yet available but in the third quarter of the year, the country recorded an inflow of $200.08 million.
COVID-19 will impair Nigeria’s FDI flow in the current year because some of the main investing countries in Nigeria: the USA, China, United Kingdom, the Netherlands and France have had their economies grounded by the pandemic.
A decline in FDI would negatively affect the nations’ foreign reserves and might put pressure on the nation’s currency whose value was recently adjusted downward to N380 to a dollar by the Central Bank of Nigeria.
According to UNCTAD, “Since our first Special Issue on the impact of the pandemic, updated economic impact estimates and earnings revisions of the largest multinational enterprises (MNEs) now suggest that the downward pressure on FDI could be -30 per cent to -40 per cent during 2020-2021.”
It stated also that “Earnings guidance by multinational enterprises (MNEs) in UNCTAD’s Top 100, a bellwether of FDI trends, confirms the rapid deterioration of prospects: 61 per cent of MNEs have issued new statements since the first week of March. In addition to earlier concerns on production and supply chain disruptions among firms with strong supply chain links to China, 57 per cent of MNEs have added warnings on the impact on sales of the global demand shock caused by the pandemic. Covid-19 is no longer just a global value chain (GVC) problem.”
According to UNCTAD, “The pandemic and the mitigation measures and lockdowns that governments are forced to impose are affecting all components of FDI. Real capital expenditures, greenfield investments and expansions are being hampered by physical closures of sites and production slowdowns. Cross-border M&As are being delayed and new M&A announcements are on course to drop by 70 per cent globally in Q1.
“While the global supply chain shock that initially appeared to be the main concern for FDI prospects has now clearly been overtaken by the expected worldwide recessionary effects of COVID-19, the damage done to GVCs may well have the more persistent effects in the long term.”
UNCTAD said on the average, the top 5000 MNEs, which account for a significant share of global FDI, have experienced downward revisions of 2020 earnings estimates of 30 per cent due to COVID-19, and the trend is likely to continue.
“Hardest hit are the energy and basic materials industries (-208 per cent for energy, with the additional shock caused by the drop in oil prices), airlines (-116 per cent), and the automotive industry (-47 per cent). The latter industry was the first to see earnings revisions anticipating the supply chain shock. Industries now expecting to be hit by a global decline in demand are rapidly catching up,” the statement said.
UNCTAD stated that the impact on FDI would be concentrated in those countries that are most severely hit by the epidemic, although negative demand shocks and the economic impact of supply chain disruptions will affect investment prospects in other countries.