Picture: 123RF
Picture: 123RF

Global foreign direct investment (FDI) flows will be hit in 2020, as the world grapples with the effects of the coronavirus and multinational firms slow down capital spending and their profits shrink, the UN’s trade body said on Monday.

FDI is expected to shrink between 5% and 15%, depending on the severity of the spread of the disease, the UN’s Conference on Trade and Development (Unctad) said in a special edition of its investment trends monitor.

“The impact on FDI will be concentrated in those countries that are most severely hit by the epidemic, though negative demand shocks and the economic impact of supply chain disruptions will affect investment prospects in other countries,” Unctad said in the report.  

More than two-thirds of the top 100 multinational enterprises monitored by Unctad — “a bellwether of overall investment trends” — have issued statements on the impact of Covid-19 on their business, the agency said. Many are slowing down capital expenditures in affected areas, it said, while 41 have warned of lower profits. The announcement of both new greenfield projects as well as M&As could result in a slowdown, because of the outbreak, Unctad said.

The development could potentially hamper SA’s own efforts to attract investment into an economy that slid into a recession in the fourth quarter of 2019 and is faced with record unemployment levels. President Cyril Ramaphosa’s administration is working towards attracting FDI — that is, fixed investment in the economy by a foreign firm or entity — of R1.2-trillion by 2023, in a bid to boost growth and create jobs.

To add insult to injury, SA had only begun to stabilise its investment flows into the country during 2018, according to Unctad’s data, “after several years of low-level inflows”. 

In January, Unctad noted that during 2019, SA had consolidated 2018’s recovery in investments, with inflows “remaining almost constant” at a little more than $5bn (or R72.35bn at the time). During 2019, total global FDI flows were flat at $1.39-trillion.

The spread of the virus that leads to the Covid-19 illness has sparked global market volatility amid fears about supply chain interruptions and worry about the effects on economic growth.

Late on Friday, Moody’s Investors Service downgraded SA’s growth forecast for the second time in less than a month, on the back of coronavirus fears. It cut SA’s growth expectations to 0.4% in 2020 in a baseline scenario that will entail “significant global disruptions”. In a scenario where the disease causes an extended and prolonged slump, it expects SA to record 0% growth in 2020.

SA authorities confirmed on Monday afternoon that seven local people were now infected with the virus.