Editorial: Q2 FDI records increase despite pandemic

Local market reacts to spike in inflation
Prof. Samuel Annim--Government Statistician

While Global FDI was estimated to drop below US$1trillion for the first time since 2005, Ghana recorded an increase in Foreign Direct Investments (FDIs) in the second quarter of the year as against an initial decline in the first quarter of 2020.

Global foreign direct investment (FDI) flows are expected to drop 40% this year, the UN announced. FDI will shrink from its 2019 value of US$1.54trillion (€1.36trillion) to less than US$1trillion for the first time since 2005, the United Nations Conference on Trade and Development (UNCTAD) said.

Chief Executive of the Ghana Investment Promotion Center (GIPC), Yoofi Grant, said that despite the initial effect of the pandemic on investments, some remarkable progress has been made. He attributed this development to transactions which were in the pipeline, as well as some “significant opportunities which also came up” as a result of the COVID-19 pandemic.

“We’ve seen quite a bit of interest in industry or manufacturing in Ghana, because there was a severe disruption to supply chains with the advent of the virus.”

Also, the agricultural sector has seen increased investment as part of efforts to guarantee food security.

Coronavirus has dramatically impacted globalisation, with flows of foreign direct investments (FDI) being disrupted as a result.

In late March, the International Monetary Fund announced that investors had removed US$83billion from developing countries since beginning of the COVID-19 crisis, the largest capital outflow ever recorded.

The contraction in FDI is going to hit developing countries particularly hard. This is because developing countries have become more reliant on FDI over the last few decades.

If the contraction in global FDI lasts for a while, the consequences for developing countries will be severe. FDI inflows also boost employment and tend to have a more positive impact on infrastructure development – and can result in technology transfers to the host economy, particularly in the manufacturing sector.

The pandemic is a supply, demand and policy shock for FDI. It is therefore gratifying that the country recorded an increase in Foreign Direct Investments (FDIs) in the second quarter of the year. Even as the world struggles to find a vaccine to contain spread of the virus, Africa on the other hand is witnessing a slowdown of the spread.

With the opening of air and sea borders, FDI is expected to rebound.

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