Global Foreign Direct Investment (FDI) decreased by 2% to $1.3 trillion in 2023, according to the latest World Investment Report by the UN Conference on Trade and Development (UNCTAD). Excluding a few exceptions, the report reveals a sharper decline of over 10% in global foreign investments for the second consecutive year, driven by increasing trade and geopolitical tensions in a slowing global economy.
Despite the challenging prospects for FDI in 2024, the report suggests that “modest growth for the full year appears possible” due to easing financial conditions and efforts towards investment facilitation. The proliferation of online information portals and single windows is fostering a conducive business and investment climate, particularly in developing countries.
“Investment is not just about capital flows; it is about human potential, environmental stewardship, and the enduring pursuit of a more equitable and sustainable world,” stated UNCTAD Secretary-General Rebeca Grynspan.
DEVELOPING COUNTRIES
FDI flows to developing countries fell by 7% to $867 billion in 2023. This decline was reflected across various regions:
- Developing Asia: 8% decrease.
- Africa: 3% decrease.
- Latin America and the Caribbean: 1% decrease.
DEVELOPED COUNTRIES
FDI flows to developed countries were significantly impacted by the financial transactions of multinational enterprises, influenced partly by the implementation of a global minimum tax rate on corporate profits. Inflows to Europe and North America declined by 14% and 5%, respectively.
Interestingly, structurally weak and vulnerable economies, including least developed countries, landlocked developing countries, and small island developing states, saw a slight increase in FDI inflows.
IMPACT ON SUSTAINABLE DEVELOPMENT
The reduction in FDI has serious implications for sustainable development. With tight financing conditions in 2023, the number of international project finance deals – crucial for funding infrastructure and public services like power and renewable energy – fell by a quarter. This led to a 10% reduction in investments in sectors linked to the Sustainable Development Goals (SDGs), most notably impacting agrifood systems and water and sanitation.
The report highlights that the mobilization of funds for SDG investment through sustainable finance products is slowing down. While sustainable bonds showed marginal growth in 2023, new inflows in sustainable investment funds dropped by 60%. Concerns about green washing and misleading sustainability claims are affecting investor demand, emphasizing the need for more systematic efforts to bring clarity and credibility to the sustainable fund market.
EFFORTS TO BOLSTER INVESTMENT FACILITATION
Investment facilitation remains crucial for private sector development and FDI attraction, especially in developing countries. In 2023, 86% of the investment policy measures adopted by these economies were favourable to investors. Digital tools, such as online single windows, have become essential for effective implementation, enhancing transparency and streamlining administrative procedures.
Since UNCTAD launched its global action menu for investment facilitation in 2016, the number of online single windows in developing countries has almost quadrupled from 17 to 67, while in developed economies, the number has more than doubled from 12 to 25.
The UNCTAD report underscores the urgent need for global efforts to enhance investment facilitation and sustainable finance to support development goals. As the world grapples with geopolitical tensions and economic challenges, fostering a conducive environment for FDI is crucial for achieving sustainable and equitable growth. Rich polluting nations must take responsibility and provide adequate climate finance to help vulnerable countries cope with climate shocks and build resilience. Investing in human potential and environmental stewardship remains key to a more sustainable future.