Foreign investment rebounds but overloaded factories go missing

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Foreign investment by businesses around the world surged in the first six months of 2021 as wealthy economies rebounded strongly from the effects of the pandemic, but new bets on manufacturing fell despite widespread signs that capacity is failing. not up to the resurgent demand.

The United Nations said on Monday that companies made new overseas investment valued at $ 852 billion in the first half of this year, an increase of $ 373 billion from the same period a year earlier. Of that total, three-quarters went to rich countries as businesses responding to the prospect of a rapid recovery driven by the rapid deployment of effective Covid-19 vaccines.

The United Nations Conference on Trade and Development said the rebound was stronger than expected, albeit uneven. While foreign investment in rich countries more than doubled compared to the first half of 2020 – with investment in the United States up 95% – companies cut their new commitments in the poorest countries of the world by 9%. world.

This divergence reflects the outlook for economic growth this year, with poor countries poised for a weaker recovery due to their limited access to vaccines. Foreign investment in East and Southeast Asia, which is dominated by China and has better access to vaccines than the poorest countries, has increased by 25%.

“The terrible pandemic has apparently ceased to be a major drag on economic performance in the advanced world,” said Holger Schmieding, chief economist at German bank Berenberg. “Barring another unpleasant shock such as the emergency of a vaccine-resistant variant of the virus, we expect Europe and the United States to go through fall and winter without further major blockages.” . “

In the years leading up to the pandemic, developing countries claimed a growing share of global foreign direct investment. However, 2021 could prove to be a failure, as rich countries suffered a larger drop in new investment in 2020.

Investments in the United States surged in the first half of the year. Pictured are vehicles and containers at a port in Bayonne, NJ


Photo:

Spencer Platt / Getty Images

UNCTAD said it is now likely that the flow of foreign investment this year will exceed pre-pandemic levels. The agency previously expected this to happen in 2022 or later.

However, most of the rapid rebound was brought on by companies buying or merging with foreign rivals. Although this is a form of foreign investment in a country, it does not increase the overall capacity of the world to provide goods and services.

This capacity is enhanced by so-called entirely new investments, for example a new factory or the expansion of an existing one. But entirely new investment in the industry in the first nine months of this year is down 11% from 2020, with larger declines recorded in the automotive, electronics and chemicals sectors. .

This suggests that companies are not quickly adding capacity to meet the surge in demand that has driven consumer prices up this year. In most wealthy countries, central bankers have said they expect these supply shortages and the pick-up in inflation they generated to be temporary.

In contrast, UNCTAD said foreign investment in infrastructure projects had risen sharply in most wealthy countries, Asia and South America. He attributed the recovery to government stimulus packages and low borrowing costs.

Write to Paul Hannon at [email protected]

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