UAE emerges as global FDI hotspot, second only to the U.S.

Global FDI flows in 2023 witnessed a marginal 3 percent increase
UAE emerges as global FDI hotspot, second only to the U.S.
UAE's FDI flows reached an unprecedented $22.73 billion in 2022

The United Arab Emirates (UAE) has secured its position as the world’s second-highest recipient of greenfield Foreign Direct Investment (FDI) announcements in 2023, following closely behind the United States. The revelation comes from the latest report by the United Nations Conference on Trade and Development (Unctad).

Record-high FDI flows

The report sheds light on the UAE’s remarkable 28 percent increase in greenfield FDI announcements in 2023. Moreover, it indicates that the UAE’s FDI flows reached an unprecedented $22.73 billion in 2022, showcasing a substantial 10 percent growth compared to $20.66 billion in the previous year. This surge marks a record high for the country and underscores its appeal as a thriving economic hub attracting international investment.

Meanwhile, West Asia experienced a stable 2 percent growth in FDI, and Saudi Arabia stood out with a remarkable 63 percent increase in greenfield FDI announcements. The data reflects the region’s resilience and attractiveness to foreign investors amid global economic shifts.

Global FDI trends

Contrary to early recession fears, global FDI flows in 2023 witnessed a marginal 3 percent increase, reaching an estimated $1.37 trillion. The report attributes this growth to positive performance in financial markets and decreasing recession concerns. However, it notes that economic uncertainty and higher interest rates did impact global investment.

In developed countries, the European Union saw a significant shift from negative $150 billion in 2022 to positive $141 billion in FDI due to large swings in Luxembourg and the Netherlands. Excluding these two countries, inflows to the rest of the EU were down by 23 percent. Thus, developing countries experienced a 9 percent decline in FDI flows, with varying trends across regions.

Whereas FDI flows to developing countries fell by 9 percent, to $841 billion, with declining or stagnating flows in most regions. FDI witnessed a 12 percent decrease in developing Asia and a 1 percent decrease in Africa. However, it was stable in Latin America and the Caribbean as Central America bucked the trend.

In the United States, the largest FDI recipient, FDI inflows in 2023 witnessed a 3 percent decrease. Moreover, greenfield project numbers decreased by 2 percent and project finance deals by 5 percent. Meanwhile, China reported a rare decline in FDI inflows by 6 percent. However, it showed an 8 percent growth in new greenfield project announcements.


International investment projects

International investment project announcements, including greenfield, project finance, and cross-border mergers and acquisitions (M&As), were mostly in negative territory. Particularly, international project finance and M&As suffered the most from higher financing costs in 2023, with 21 percent and 16 percent decreases, respectively. Greenfield project announcements also witnessed a 6 percent decrease in number. However, their value increased by 6 percent and showed higher numbers in manufacturing in an initial sign of recovery following a long-term declining trend.

In developed regions, international investment project announcements decreased across the board. M&A values were $280 billion lower than in 2022, directly depressing FDI flows. Project finance deals also witnessed a $157 billion decrease. “Lower values of greenfield project announcements will affect 2024 FDI flows,” the report.

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Industry-specific trends

The Unctad report delved into industry-specific trends, highlighting a 16 percent rise in project numbers in global value chain (GVC) intensive sectors. Meanwhile, the number of greenfield project announcements and international project finance deals in infrastructure industries fell by 4 percent overall. This was largely driven by lower project finance in renewable energy.

New international project finance deals in the renewable energy sector witnessed a 17 percent decrease in number and a 10 percent decrease in value. This decline in the number of new projects was the first since the Paris Agreement in 2015.

Future outlook

The report concludes with a cautiously optimistic outlook for 2024, anticipating a modest increase in FDI flows. Projections suggest stabilization in financing conditions for international investment deals. However, the report acknowledges persistent risks, including geopolitical uncertainties, high global debt levels, and concerns about potential economic fractures.

In summary, the UAE’s ascent in FDI rankings underscores its growing significance on the global economic stage, while the Unctad report offers insights into broader trends shaping international investment in the coming year.

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