Foreign direct investment (FDI) in Turkey soared 79% year-over-year in 2021, a report by United Nations’ trade and development agency UNCTAD showed Thursday, as inflows rebounded around the world to pre-pandemic levels.
Coming off a low base in 2020, global FDI flows rose 64% to $1.58 trillion last year, UNCTAD’s World Investment Report 2022 said, driven by a booming merger and acquisition activity and rapid growth in international project finance due to loose financing and major infrastructure stimulus packages.
The figure had slipped to around $963 billion in 2020, well below the low point reached after the global financial crisis a decade ago, amid a global economic fallout from the pandemic.
Turkey saw the FDI inflow reach $14 billion, up from around $8 billion in 2020, when the country saw a relatively smaller drop of 15%, compared to 35% on a global level.
The inflows since 2002 have exceeded the level of $240 billion, a statement by Presidential Investment Office said Friday. It said the inflows had financed 41% of the country’s total current account deficit.
Turkey’s share in global FDI flows has increased to 0.9%, up from 0.8% in 2021 and 0.6% in 2019. The country aims to lift this figure to 1.5%.
U.K. top investor
Manufacturing, service and agriculture topped the list among industries in Turkey, accounting for $8.4 billion of the FDI inflow in 2021, an increase of 116% from a year ago, the Investment Office said.
Investments in real estate market soared by 42.5% to $5.6 billion, it added.
European countries accounted for 60% of the inflows in Turkey, followed by Asia and the Americas with 23% and 16%, respectively.
The U.K. is the biggest investor among nations, accounting for 19%, followed by the U.S. and the Netherlands with 16% and 13%, respectively. Among other major investors were Switzerland, the United Arab Emirates, Germany, South Korea, Japan and Qatar, the statement said.
The top 10 economies for FDI inflows in 2021 were the United States, China, Hong Kong, Singapore, Canada, Brazil, India, South Africa, Russia and Mexico.
While the recovery benefited all regions, almost three-quarters of the growth was concentrated in developed economies, where FDI flows soared 134% to $746 billion, the report showed.
Flows to developing economies rose 30% to $837 billion – the highest level ever recorded – largely due to strength in Asia, a partial recovery in Latin America and the Caribbean and an upswing in Africa.
The share of developing countries in global flows remained just above 50%.
For structurally weak, vulnerable and small economies, FDI rose by 15% to 39 trillion.
Announced international project finance deals hit a record of 1,262 projects last year and more than doubled in value to $656 billion.
Ukraine war to hit investment
Meanwhile, UNCTAD said prospects for this year are grimmer, as food, fuel and financial crises triggered by Russia’s war in Ukraine are dampening the business climate.
"The global environment for international investment changed dramatically with the onset of the war in Ukraine," said UNCTAD chief Rebeca Grynspan.
"The war is having effects well beyond its immediate vicinity, causing a cost-of-living crisis affecting billions of people."
Investor uncertainty and risk aversion "could put significant downward pressure on global FDI this year," the former vice president of Costa Rica said.
Signs of weakness are already emerging, UNCTAD said in its World Investment Report 2022.
Preliminary first-quarter data shows greenfield project announcements have plunged 21% globally, cross-border mergers and acquisitions activity are down 13% and international project finance deals dropped 4%.
Greenfield investment typically refers to projects that create new physical facilities which are considered productive, in part because they normally create jobs. New greenfield projects are considered an indicator of future FDI trends.
"This year, the business and investment climate has changed dramatically as the war in Ukraine results in a triple crisis of high food and fuel prices and tighter financing," UNCTAD said.
"Other factors clouding the FDI horizon include renewed pandemic impacts, the likelihood of more interest rate rises in major economies, negative sentiment in financial markets and a potential recession."
The agency said the growth momentum of 2021 could not be sustained and that global FDI flows in 2022 would "likely move on a downward trajectory, at best remaining flat."
Fears
"This fragile growth of real productive investment is likely to persist in 2022," said U.N. Secretary-General Antonio Guterres.
"The fallout of the war in Ukraine with the triple food, fuel and finance crises, along with the ongoing Covid-19 pandemic and climate disruption, are adding stresses, particularly in developing countries.
"There is a significant risk that the momentum for recovery in international investment will stall prematurely, hampering efforts to boost finance for sustainable development."