While the outlook for 2024 remains challenging, this year’s modest growth is still possible
Global FDI inflows fell by 2 percent to $1.3 trillion in 2023, as trade and geopolitical tensions weighed on the global economic slowdown, according to the World Investment Report 2024 by the United Nations on Trade and Development (UNCTAD).UNCTAD).
The report confirms that the headline figure exceeds 10% when excluding a small number of European economies that recorded significant fluctuations in investment flows.
The report indicated that crises, protectionist policies, and regional reorganizations lead to the disruption of the global economy and the fragmentation of trade networks, regulatory environments, and global supply chains. This undermines the stability and predictability of global investment flows, creating isolated obstacles and opportunities.
While the outlook for 2024 remains challenging, the report says this year’s modest growth is still possible, citing easing financial conditions and investment facilitation efforts in both national policies and international agreements.
She added that investments are growing in many value-intensive global manufacturing sectors such as automobiles and electronics in regions and countries that have easy access to major markets. But many developing countries remain marginalized, struggling to attract foreign investment and participate in global production networks.
Developing countries experience inconsistent flows of foreign direct investment
Foreign direct investment in developing countries fell by 7 percent in 2023 to $867 billion, but the decline varied widely between regions. While new project announcements in developing countries increased by more than 1,000, the distribution was uneven, with approximately half in South-East Asia and a quarter in West Asia.
Foreign direct investment in Africa decreased by 3%, reaching $53 billion
Green field announcements included huge projects such as the green hydrogen project in Mauritania. International project financing decreased by a quarter in number of deals and by half in value.
Foreign direct investment to developing countries in Asia fell by 8 percent to $621 billion
China, the world’s second-largest recipient of foreign direct investment, witnessed a rare decline. India, West and Central Asia also saw significant declines, while Southeast Asia stabilized.
Foreign direct investment in Latin America and the Caribbean fell 1% to $193 billion
The number of investment announcements in new areas decreased, but the value of new projects increased due to significant investments in the commodity sectors, vital minerals and renewable energy.
At the same time, foreign direct investment flows to weak and structurally fragile economies increased. Flows to 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 financing needs to be strengthened
Difficult financing conditions in 2023 led to a 26% decline in international project financing, which is crucial for infrastructure investment in areas such as energy and renewable energy.
As a result, investment in sectors linked to the Sustainable Development Goals decreased by more than 10%. The report highlights that agri-food, water and sanitation systems recorded fewer internationally funded projects in 2023 than in 2015, when the targets were adopted.
While funds allocated to invest in the SDGs through sustainable finance products in global capital markets are still growing, their pace is slowing. Sustainable bonds showed marginal growth in 2023, while inflows into sustainable investment funds fell by 60 percent.
Concerns about greenwashing linked to misleading sustainability claims are increasingly impacting investor demand. Policy action is urgently needed to mitigate the risks of widespread backlash against sustainable investment strategies.
Policymakers should also take into account the negative indirect impacts of sustainability reporting standards on companies outside key markets. In particular, SMEs in developing countries may face difficulties in meeting increased disclosure requirements, which may affect their market access and participation in global supply chains.
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