Letter IEDI n. 1150—The reaction of FDI in Brazil and in the world
The latest edition of the World Investment Report, a UNCTAD document on foreign direct investments (FDI), brought the 2021 data, allowing to update the world rankings of the largest FDI recipients and of the top FDI sources.
Worldwide, FDI inflows totaled US$1.58 trillion in 2021, a +64.3% increase over the previous year. This amount even exceeded the pre-pandemic levels, just above US$1.4 trillion in both 2018 and 2019.
Developed countries were the group that grew the most, registering a +133.6% high compared to 2020. FDI going to the set of developing countries, in turn, rose by +30%.
Despite this recent disparity in the pace of expansion, FDI to developing countries accounted for the largest share of the world total. The amount of US$837 billion obtained by these nations in 2021 was a record and represented 53% of world FDI. Developed countries received US$746 billion in FDI or 47% of the total.
In terms of regions, FDI inflows grew more in developed countries (134%) than in developing countries (30%), reaching, respectively, US$746 billion and US$837 billion in 2021.
In particular, among developed nations, the flows to the United States stand out, more than doubling between 2020 and 2021: from US$150.8 billion to US$367.4 billion. In nominal terms, this was the third highest FDI value ever recorded by the US, below 2015 and 2016 only. Thus, the US consolidated itself at the top of the ranking of the largest FDI recipients.
China, on the other hand, ranked 2nd in the 2021 FDI destination ranking, recording an amount of US$181 billion, which, despite the +21.2% growth in relation to 2020, represented less than half the flow of FDI into the US.
In terms of FDI attraction, Brazil stood out far ahead of China and the world total in 2021. Compared to the previous year, we presented a jump of +78.6%, driving the performance of Latin America as a whole (+56%). As a result, we rose three positions in UNCTAD's international FDI table: from 9th place in 2020 to 6th in 2021.
The amount reached last year, US$50 billion, in addition to being less than 1/3 of FDI's flows into China, continued below the pre-pandemic figure. It was 23% lower than the FDI received in 2019 and 15.7% below the average level for the 5 years prior to the pandemic (US$59.3 billion between 2015 and 2019). That is, there is a recovery; however, it is partial.
In Brazil, according to UNCTAD, the entry of FDI was mainly intended for agribusiness, the automotive sector, electronics manufacturing, information technology and financial services. The values of the announced greenfield projects and international project finance operations in the country increased +35% and +32%, respectively, between 2020 and 2021.
UNCTAD also highlighted some operations for their individual amounts, such as the initial contribution of Bravo Motor (USA) to a US$4.4 billion greenfield project to produce electric vehicles, batteries and components, and the international project finance for the construction of a 2 GW offshore wind farm for US$5.9 billion, sponsored by Ocean Winds (Spain). As UNCTAD emphasizes, the privatization of the electricity sector should continue to be one of the main channels for FDI to flow into Brazil in 2022.
As for FDI outflows, the value in developed economies more than doubled, from US$408 billion in 2020 to US$1.3 trillion in 2021, under great US influence (+72%), expanding the share of this group to 75% of total global FDI outflows. The US was the largest source of FDI in the world, followed by Germany and Japan.
Developing countries' FDI outflows rose +17.8%, constrained by the reduction seen in China (-5.5%) and also in Hong Kong (-13.2%). Thus, from 2020 to 2021, China fell from 2nd to 4th in the ranking of top FDI sources and Hong Kong from 4th to 7th.
For 2022, UNCTAD argues that the war in Ukraine is likely to shake the trajectory of international business and cross-border investments not only in the region directly involved in the conflict. According to the institution, with a lengthy conflict, there are risks of a triple—food, energy and financial—crisis, boosting inflation, inducing interest rates hikes and aggravating debt spirals.
UNCTAD also mentions the new COVID-19 outbreaks in China, which have caused blockages in some strategic areas of global value chains, and should negatively impact world FDI.