Global foreign direct investment (FDI) flows plunged 2 percent to $1.3 trillion in 2023, as trade and geopolitical tensions weighed on a slowing global economy, according to the World Investment Report 2024 released by UN Trade and Development (UNCTAD).
The report emphasizes that the headline figure exceeds 10 percent when excluding a few European conduit economies that registered large swings in investment flows.
The report suggested that crises, protectionist policies and regional realignments are disrupting the world economy, fragmenting trade networks, regulatory environments and global supply chains. This undermines the stability and predictability of global investment flows, creating both obstacles and isolated opportunities.
While prospects for 2024 remain challenging, the report says modest growth for the year remains possible, citing easing financial conditions and investment facilitation efforts in both national policies and international agreements.
It added that investments are growing in several global value chain-intensive manufacturing sectors like automotive and electronics in regions and countries with easy access to major markets. But many developing countries remain marginalized, struggling to attract foreign investment and participate in global production networks.
Developing countries witness inconsistent FDI flow
FDI to developing countries fell by 7 percent in 2023 to $867 billion, but the decrease varied significantly across regions. While greenfield project announcements in developing countries increased by over 1,000, the distribution was uneven, with nearly half in South-East Asia and a quarter in West Asia.
FDI to Africa down 3 percent to $53 billion
Greenfield announcements included megaprojects like a green hydrogen project in Mauritania. International project finance fell by a quarter in deal numbers and by half in value.
FDI to developing countries in Asia down 8 percent to $621 billion
China, the world’s second-largest FDI recipient, experienced a rare decline. India and West and Central Asia also saw significant drops, while South-East Asia held steady.
FDI to Latin America and the Caribbean down 1% to $193 billion
The number of greenfield investment announcements fell, but the value of greenfield projects rose due to large investments in commodity sectors, critical minerals and renewable energy.
Meanwhile, FDI flows to structurally weak and vulnerable economies increased. Inflows to the least developed countries rose to $31 billion, or 2.4 percent of global flows. Landlocked developing countries and small island developing states also saw increases. But in all three groups, FDI remains concentrated among a few countries.
Sustainability finance needs enhancement
Tight financing conditions in 2023 led to a 26 percent downturn in international project finance, which is crucial for infrastructure investment in areas such as power and renewable energy.
As a result, investment in sectors linked to the Sustainable Development Goals (SDGs) fell by more than 10 percent. The report highlights that agrifood systems and water and sanitation registered fewer internationally financed projects in 2023 than in 2015, when the goals were adopted.
While the funds for SDG investment through sustainable finance products in global capital markets are still growing, the pace is slowing. Sustainable bonds showed marginal growth in 2023, while inflows in sustainable investment funds dropped by 60 percent.
Greenwashing concerns related to misleading sustainability claims are increasingly affecting investor demand. Policy actions are urgently needed to mitigate the risk of widening backlash against sustainable investment strategies.
Policymakers should also consider the negative spillover effects of sustainability reporting standards on firms outside main markets. In particular, small and medium-sized enterprises in developing countries may struggle to meet increasing disclosure requirements, which could affect their market access and participation in global supply chains.
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