The state of FDI and Covid-19 two years later

Greenfield FDI is predicted to return to pre-pandemic levels in 2022, but Covid-19 continues to be a concern two years after it first appeared on the scene.

Following an 18 percent drop in 2020, greenfield foreign direct investment (FDI) is expected to return substantially in 2021 to levels similar to 2019.

Future growth is expected to be restrained as a result of geopolitical pressures such as Russia’s invasion of Ukraine, continued supply chain issues, rising energy prices, and inflationary pressures that are putting a strain on the global economy.

Is the FDI comeback real?

In the years leading up to Covid-19, greenfield FDI and cross-border mergers and acquisitions were often volatile. Unlike certain other macroeconomic parameters, investment patterns do not tend to reflect year-on-year growth. However, there seems to be a general upturn in both greenfield projects and M&A deals between 2015 and 2019. Both measures dropped dramatically when Covid-19 hit.

Greenfield FDI projects are expected to expand by 14–18 percent in 2021, falling just short of the levels seen in 2019. This follows a drop of 18 percent in project counts in 2020. When compared to M&A, greenfield FDI takes longer to recover. Government-imposed restrictions make site selection much more difficult, if not impossible, in 2020. Greenfield investors are far more cautious during recessions. On the contrary, as target firm revenues decrease during recessions, M&A investors may be able to find some bargains. The number of M&A agreements (domestic and cross-border) jumped by a staggering 30% in 2021, according to GlobalData’s deals database, after being reasonably constant between 2019 and 2020. Acquisitions were a major factor in the company’s expansion.

The comeback of Covid and FDI

Since vaccination programs were implemented, the case fatality rate of Covid-19 (deaths per cases) has decreased in most countries. For people who have been vaccinated or previously infected, the newest strain of the virus, Omicron, appears to have lesser symptoms. Many economies have been able to reopen as a result of this. Even the most hard-hit industries, such as tourism, began to recover in 2021. International travel is also increasing in popularity. Most countries still need proof of vaccines for entry, but vaccination uptake has been generally good in most countries.

In terms of Covid-19 vaccines, North America, Latin America, and Asia-Pacific are the top three regions. More than three-quarters of the population in each of these areas has received at least one vaccine dose. In Africa, less than one-fifth of the population has received at least one Covid vaccine. Africa is likewise dealing with a resurgence in FDI. Greenfield FDI into Africa in 2021 will be half of what it was in 2019, according to the UN Conference on Development and Trade’s (UNCTAD) Investment Trends Monitor, and international project finance deals will be down 30% from 2019. Developed economies have fueled FDI expansion in general. When compared to greenfield FDI, M&A was a more powerful growth tool.

GDP is one of the macroeconomic parameters that influences FDI.

Even before Russia’s invasion of Ukraine, many forecasters predicted a reduction in economic growth in 2022 compared to 2021. The International Monetary Fund (IMF) downgraded its 2022 world output predictions to 4.4 percent in January 2022, down 0.5 percent from its prior forecast in October 2021. More adjustments are expected to be released in the near future. GlobalData forecasts that real global GDP will expand by roughly 3.4 percent in 2022, according to their March 2022 forecast. Ukraine is anticipated to lose 10% of its population, while Russia will lose 8.6%. However, real GDP does not account for inflation, which is at an all-time high in early 2022.

Many countries had dramatic returns when their economies began to reopen in 2021. However, this resulted in the previously noted inflationary pressures, as well as persistent supply chain backlogs, both of which stifled growth. Another source of anxiety is the possibility of more lockdowns. A rise of Covid cases in Hong Kong forced Shenzhen to be placed under lockdown in March 2022. Although it may now be perceived as unnecessarily cautious – in the sense that other countries are unlikely to follow such a stringent response — it does show that Covid is not yet ‘over.’

Because greenfield FDI and GDP are highly associated, and because a large portion of FDI is market seeking, FDI levels will be significantly impacted if the global economy’s growth outlook continues to deteriorate.


In 2021, global trade values reached a new high of $28.5 trillion dollars. Both commodities and services trade increased. UNCTAD expects that trade in 2021 will be around 25% greater than in 2020, and 13% higher than in 2019. FDI “stimulates the growth of exports from countries of origin, and hence this investment is complementary to trade,” according to previous OECD studies. With the exception of transportation equipment, practically other sectors experienced growth in trade. The increase in global trade value was largely due to rising commodity prices. In 2022, trade volumes are projected to drop due to rising energy costs, continuing supply chain challenges, reduced economic growth, and the Ukraine-Russia war.

Throughout the Covid epidemic, patent companies have been developing. According to GlobalData’s Patent Analytics, the number of patents awarded has increased from 2019 to 21 while patent submissions have stayed largely constant. Climate change, industrial automation, digitisation, cybersecurity, renewable energy, and healthtech were all prominent themes in these patents. During the epidemic, such areas have risen to the front of investors’ minds, and they are anticipated to be significant FDI growth sectors.

Impacts of the Covid-19 epidemic on FDI in the Long Run

The Covid epidemic has forced (or permitted) businesses to reconsider their expansion plans. We mentioned nearshoring becoming increasingly popular in our FDI projections for 2021. Because many foreign investors have pulled out of Russia as a result of the Ukraine-Russia conflict, demand for nearshoring may persist.

Covid-19 has also changed the way things are done around the globe. According to numerous polls, working from home (in some capacity) is going to become the new normal. More than three-quarters of those polled by GlobalData believe that working from home is the way to go. With governments increasingly focusing on climate change, the reduction in emissions caused by people working from home would be a welcome gain.

Companies have also been assured that the quality of their work has not deteriorated during the pandemic. In terms of foreign direct investment, this will allow corporations to target top talent anywhere in the world without the requirement for that person to work in an office at certain hours.

As a result, future demand for offices should be reduced. Companies will still need to have a physical presence, but they will require less space. Prior to Covid, hot-desking was growing more prevalent. Companies trying to cut expenses will welcome the ability to operate at a slightly reduced capacity, given that some employees will be working from home or travelling.

The globe has grown significantly more digitalised as a result of many people having to work from home at some point during the pandemic. Companies will keep profiting from their digital investments. Future FDI initiatives will place a greater emphasis on AI and machine learning, as well as quantum computing. As automation becomes more important, we will see a continuous trend of smaller FDI initiatives (jobs produced per project).

More scrutiny is being applied to investments than ever before. In reaction to firm acquisitions that are considered as a security threat, many nations have tightened their FDI restrictions. Although many restrictions may be eased in the future, it does not appear that this will happen in the near future. Chinese purchases have been cited as a major driver for increased FDI screening. These laws are unlikely to have a big influence on greenfield FDI project numbers, but they will make M&A agreements in sensitive areas more difficult. The pandemic has also made governments realise that they need to be more protective of treasured enterprises that may help them through difficult times by limiting their reliance on other countries and supply chains.

Covid-19 had a significant impact on FDI levels. The drop in the number of FDI projects in 2020, however, was swiftly reversed in 2021. As the world begins to consider what a post-Covid era would entail, the Ukraine-Russia conflict may put a stop to any hopes of a quick and durable recovery. Other geopolitical concerns, including Brexit and the US presidential election, remain, while supply chain challenges, inflationary pressures, and tighter FDI laws will all contribute to a bleak prognosis for 2022. Nonetheless, a prediction of 6% FDI project growth in 2021 may still be possible if these concerns can be addressed as the business sector prepares to re-ignite.