This morning the United Nations Conference on Trade and
Development (UNCTAD) issued a special report on Global Investment Trends on the
potential impact of the Coronavirus outbreak on Foreign Direct Investment (FDI) in 2020 – and it wasn’t
good
Depending on the scenario for the spread of the epidemic, the
downward pressure on FDI caused by Covid-19 is expected to be -5% to -15%
(compared to previous forecasts projecting marginal growth in the underlying
FDI trend for 2020-2021).
The impact on FDI will 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.
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Many multinational enterprises (MNEs) in UNCTAD’s Top 100, a
bellwether of overall investment trends, are slowing down capital expenditures
in affected areas. In addition, lower profits – to date, 41 have issued profit
alerts – will translate into lower reinvested earnings (a major component of
FDI).
On average, the top 5000 MNEs, which account for a significant
share of global FDI, have seen downward revisions of 2020 earnings estimates of
9% due to Covid-19. Hardest hit are the automotive industry (-44%), airlines
(-42%) and energy and basic materials industries (-13%). Profits of MNEs based
in emerging economies are more at risk than those of developed country MNEs:
developing country MNE profit guidance has been revised downwards by 16%.
