Trends in global Foreign Direct Investments (FDI) reduction in 2020 and their impact on Georgia

Nika Chitadze

Professor of the International Black Sea University

President of the George C. Marshall Alumni Union, Georgia - International and Security Research Center

Director of the Center for International Studies

Invited Professor of the European University and Caucasus International University
















General Overview
 

The implementation of the Foreign Direct Investments (FDI) by the Transnational Companies in the different sectors of economy of the various countries in the World is one of the main examples of globalization. Noteworthy is the fact that in 2019, the volume of Foreign Direct Investment in various countries amounted to 1.54 Trillion Dollars.

According to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) in the world may decline by 40% in 2020 due to the Coronavirus pandemic and by 5-10% in 2021.

Accordingly, it can be expected, that the volume of Foreign Direct Investment will fall to $ 1 trillion for the first time since 2005.

According to UNCTAD report, investment growth will begin in 2022. The authors of the document explain that “pandemics are a shock for supply, demand and Foreign Direct Investment. The prospect of a deep recession will help businesses reconsider their projects”.

According to the forecast, a double decline in FDI is expected in Latin America, from 30% to 45% in the developing countries in Asia, from 25% to 40% in Africa and from  25% to 40% in developed countries.

The economic downturn caused by the pandemic has "seriously effected the countries of Southeast Europe, the CIS and Georgia, where foreign direct investment will fall by about 38% in 2020," UNCTAD said in a statement.

Thus, it can be assumed that the global economy is in a worse position now than it was within the 2008 financial crisis.

Foreign direct investment in Georgia decreased by 41.7% within first quarter of 2020

According to the preliminary data, the volume of foreign direct investments in Georgia in the first quarter of 2020 amounted to 165.4 million USD, which is by 41.7 percent less than the preliminary data for the first quarter of 2019.

According to the National Statistics Office of Georgia, among the main reasons for the investment`s decline is the completion of the construction of the main gas pipeline and the transfer of several foreign enterprises to the ownership of the resident of Georgia.

It should be noted that the volume of foreign direct investment in the reporting period of the current year is the lowest since 2009.

Conclusion

Overall, due to the decline in global investment and other reasons, according to the World Bank prognosis, global economy will be decreased for 5,2%.

According to the World Bank's Global Economic Outlook for June 2020, this will be the deepest recession in the run-up to World War II.