Global foreign Direct Investment (FDI) grew in 2021 to beat its pre-pandemic level, driven by strong corporate earnings and a record year for merger and acquisition (M&A), the Organisation for Economic Cooperation and Development (OECD) reports.
New data from the OECD showed the global FDI bounced back strongly last year, jumping by 88% year-over-year to $1.8 trillion, which was 37% higher than its pre-pandemic level.
The surge in FDI was, “boosted by record-high levels of reinvestment of earnings and increased equity inflows involving major M&A transactions,” the OECD said.
In particular, cross-border M&A activity was up by 50% from pre-pandemic levels in developed markets, and up 25% in emerging markets, according to the report seen by Business Metrics on Monday.
The OECD analysis of the flows shows that the US, by far the world’s largest economy, led the beneficiaries with FDI accretion of more than $382 billion, followed by China, which received $334 billion in the year under review. Other recipients include Canada which came far in third place with $60 billion, and then Brazil at $50 billion.
“The United States was also the largest source of FDI outflows, which peaked in 2021, boosted by high levels of reinvestment of earnings. Germany, Japan, China and the United Kingdom followed, with more than US$100 billion outflows in 2021,” the report said.
The OECD data also indicates that greenfield investment is well above pre-Covid levels in advanced countries, but remains weak in emerging and developing economies.
This growth was driven by OECD area earnings on inward and outward FDI reaching some of their highest levels since 2005. Of those earnings, less was distributed to shareholders, resulting in unprecedented levels of reinvestment of earnings. Inflows to the OECD area exceeded pre-pandemic levels by 5% and outflows reached a seven-year record-high, boosted by high levels of reinvestment of earnings.
FDI inflows to non-OECD G20 economies were 47% above pre-pandemic levels, while FDI outflows to the latter economies were 20% above pre-pandemic levels.
Completed cross-border mergers and acquisitions (M&A) deals exceeded pre-pandemic levels by 50% in advanced economies and by 25 % in emerging and developing economies.
The rebound in greenfield investment activity was less even, increasing in advanced economies to surpass pre-pandemic levels by 16%, but remaining subdued in emerging and developing economies.
Unfortunately, Africa, a continent of 1.3 billion people with a combined GDP of about $3 trillion, which has been worst-hit by the pandemic, is not in reckoning in the data.