A report by the United Nations Conference on Trade and Development, (UNCTAD) forecasts a precipitous drop by up to 40 per cent in global trade, due to the Covid-19 pandemic that has affected the global economy.
Released recently, the annual World Investment Report (WIR 2020) showed global investment tailspin below $1 trillion from their 2019 value of $1.54 trillion.
This nosedive will be for the first time since 2005, a recession much worse than the 2008 financial catastrophe. Foreign Direct Investment (FDI) is projected to decrease by a further 5 to 10 per cent in 2021.
Africa alone, is expected to see a decline of FDI between 25 and 40 per cent in 2020. This would bring foreign investment in Africa below $35 billion.
Despite early concerns about the potential spread of COVID-19 in Africa, the continent appears to have been spared the initial outbreak seen in other parts of the world. Although it also suffers from structural vulnerabilities and commodity dependence, recent macroeconomic indicators show a relatively more solid growth path than in other regions.
Mitigating factors on Africa perspective
The ongoing regional cooperation, including through the African Continental Free Trade Area (AfCFTA), may also prove instrumental in designing regionally coordinated responses to the crisis and supporting regional trade and FDI.
Depending on the duration and severity of the global crisis, the longer-term outlook for FDI in Africa could draw some strength from the implementation of the African Continental Free Trade Area Agreement in 2020, including the conclusion of its investment protocol.
In addition, investment initiatives for Africa by major developed and emerging economies could help the recovery. In 2019, FDI flows to Africa had already declined by 10 per cent to $45 billion. Increased FDI flows to some of the continent’s major economies, including Egypt, were offset by reductions in others, such as Nigeria and South Africa.
FDI flows to transition economies are expected to fall by 30 to 45 per cent. In natural-resource-based projects, prospects are being revised downward as demand for commodities weakens and the price of oil, one of the main exports from several economies in transition, remains depressed. Export-oriented production for global value chains (GVCs), e.g. in special economic zones, will also be heavily affected.