THE COVID-19 pandemic has taken a heavy toll on global economic activity. Foreign direct investment (FDI) is no exception. Last year flows of FDI dropped by one-third from $1.5trn in 2019 to $1trn, the lowest since 2005, according to an annual report by the United Nations Conference on Trade and Development (UNCTAD) published on June 21st. Inflows to rich countries fell faster than those to developing ones—by 58% against just 8%. Developing countries’ share of the total thus climbed to two-thirds, from just under half in 2019 (see chart). UNCTAD expects total flows to bottom out this year; by next year, if they are at the upper end of its projections, they may get back to where they were in 2019.

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The shrinkage of FDI into rich countries, UNCTAD notes, was aggravated by a drop in “conduit” flows (ie, those routed through one country, such as the Netherlands or Switzerland, on the way to another), intra-firm flows and corporate restructuring. Globally, inflows stripped of those elements were down by about 25%. Nevertheless, mergers and acquisitions, the biggest component of rich countries’ inflows, fell by 11%; “greenfield” investments in new projects were down by 16% and project finance by 28%. Flows into America fell by 40%, largely because of a reduction in reinvestment of earnings by foreign firms’ American affiliates, but the country remained the biggest recipient of FDI, with $156bn, just ahead of China, at $149bn.

Poorer countries did not exactly get off lightly. Collapses in demand for their exports and commodity prices hammered the investment prospects of many of them. In Latin America and the Caribbean inflows shrivelled by 45%. In Brazil, which has suffered more than 500,000 deaths from covid-19, they plummeted from $65bn to just $25bn. UNCTAD also expects that Africa and Latin America will see the weakest recoveries in FDI. Flows into developing Asia, which accounts for more than half of the global total, actually rose by 4% last year, to $535bn. But strip out China (up by 6%) and conduit flows through Hong Kong, and the region’s inflows fell by 6%—and by 25% in South-East Asia.

UNCTAD worries in particular that the pandemic has hurt FDI in sectors where poor countries need it most. The value of announced investment in water and sanitation fell last year by 67%; in health, transport and energy infrastructure by 54%; in agriculture by 49%; and in education by 35%. Investment in renewable energy declined too, though by a less gloomy 8%. Growth in investment in these areas—essential to the UN’s sustainable-development goals—was already flagging, says UNCTAD, before the pandemic. Poor countries lag behind rich ones in their ability to raise funds by taxing and borrowing. And now they have even more ground to make up.