The decline in foreign direct investment (FDI) in the world during the past one year has happened due to several reasons, including global turmoil, and economic uncertainty caused by the Covid-19 pandemic, in addition to changes in investment laws in some countries. These issues may make companies and entrepreneurs reluctant to invest than ever before.
If we look at most of the Arab countries, we find that foreign direct investment in these countries constituted a small percentage due to political and economic problems, unemployment, bureaucracy, corruption and other problems. All of these causes led to the flow of investments to other countries. Today, the real investor looks at these issues before investing in any country. They look to countries which are characterised by flexible and uncomplicated laws, and treat citizens and foreigners equally when they make investments.
It is well known that foreign direct investment is simply an external financial investment made by a company, institution or individual from one country to another by owning a company or a share to take a percentage according to the laws of the countries.
According to Money Transfer data, the countries that received the largest foreign direct investment in 2020 were China, which ranked first in flows by getting $212.5 billion, an increase of 14 per cent over 2019, while the United States of America came second for most inflows by $177.1 billion, down 37 per cent from 2019. As for India, is concerned it received investments of $64.4 billion in 2020, ranking third among the largest recipients, followed by other countries in Europe, Asia, Latin America and Canada, in which foreign investments ranged between $26 billion and less.
The largest increase in foreign direct investment in 2020 was for Luxembourg, which rose to $62 billion, an increase of 319 per cent compared to 2019, which is also the second richest country in the world in terms of per capita GDP. The largest decrease in the flow of foreign direct investment was for Finland, where the percentage decreased by 81 per cent to reach $2.6 billion in 2020 compared to $13.5 billion in 2019. Russia also lost 70 per cent of foreign investment flows in 2020 to reach $9.7 billion, compared to $32.1 billion in 2019.
Today, there are many advantages that drive foreign investments in the world, including the ability of these countries to achieve economic diversification in addition to tax incentives, increasing job opportunities, and those that are characterised by low labour costs and tariff preferences.
Most of these advantages focus on reducing costs and risks for enterprises, while the benefits for the host countries are mostly in various economic aspects. On the other hand, there are drawbacks in the event of introducing large companies to the markets of new countries, including the displacement of local companies that are unable to confront the giant ones, and the exit of profit flows from the host country instead of investing them inside, which requires the existence of specific legislation to maximise the advantages and reduce the defects of these practices.
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