Global FDI to fall 2% to $1.3 trillion in 2023: report

Outlook for 2024 remains challenging, but modest growth possible throughout the year

According to the World Investment Report 2024 released by the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment (FDI) flows are expected to fall by 2% to $1.3 trillion in 2023 as trade and geopolitical tensions weigh on the slowing global economy.

The report highlights that excluding some European conduit economies that saw large fluctuations in investment flows, the headline figure is above 10 percent.

The report notes that crises, protectionist policies and regional restructuring are disrupting the global economy and fragmenting trade networks, regulatory environments and global supply chains, undermining the stability and predictability of global investment flows, creating both obstacles and isolating opportunities.

While the outlook for 2024 remains challenging, with efforts in both national policies and international agreements to ease financial conditions and promote investment, the report says modest growth in 2024 is still possible.

He added that regions and countries with easier access to major markets are seeing increased investment in global value-chain-intensive manufacturing industries, such as automobiles and electronics, but many developing countries remain left behind and struggle to attract foreign investment or join global production networks.

FDI inflows are unstable in developing countries

FDI to developing countries fell 7% to $867 billion in 2023, but the decline varied widely by region. Greenfield project announcements in developing countries increased by more than 1,000 projects, but were distributed unevenly, with almost half in Southeast Asia and a quarter in West Asia.

FDI into Africa falls 3% to $53 billion

Greenfield announcements included megaprojects such as a green hydrogen project in Mauritania. International project finance saw deal numbers fall by a quarter and values ​​halved.

FDI into developing Asia falls 8% to $621 billion

China, the world’s second largest recipient of FDI, saw a rare decline, while India, West Asia and Central Asia also saw large declines, while Southeast Asia remained stable.

FDI into Latin America and the Caribbean falls 1% to $193 billion

Although the number of greenfield investment announcements declined, the value of greenfield projects increased due to large investments in the commodities sector, critical minerals and renewable energy.

Meanwhile, FDI flows to structurally weak economies increased. Inflows to least developed countries reached $31 billion, accounting for 2.4 percent of global flows. There were also increases in landlocked developing countries and small island developing States. However, in all three groups, FDI remains concentrated in a few countries.

Sustainability finance needs to be strengthened

Tough funding conditions for 2023 led to a 26% decline in international project financing, which is essential for infrastructure investment in areas such as power and renewable energy.

As a result, investments in areas linked to the Sustainable Development Goals (SDGs) fell by more than 10%. The report highlights that the sectors of agri-food systems and water and sanitation received fewer internationally funded projects in 2023 than in 2015, when the goals were adopted.

Capital for SDG investing through sustainable finance products in global capital markets is still growing, but the pace is slowing: sustainable bonds showed a slight increase in 2023, while flows into sustainable investment funds fell by 60%.

Greenwashing concerns related to misleading sustainability claims are increasingly affecting investor demand. Policy measures are urgently needed to mitigate the risks of a widespread backlash against sustainable investment strategies.

Policymakers should also consider the adverse impacts of sustainability reporting standards on companies outside their primary markets. Small and medium-sized enterprises in particular from developing countries may struggle to meet increased disclosure requirements, which could affect their market access and participation in global supply chains.

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