A new UNCTAD report, Global Investment Trends Monitor, shows Foreign direct investment (FDI) flows to developing countries fell by 9% to $841 billion in a global context of weak investment and economic uncertainty.
The report said developing countries in Asia felt the brunt of the decline, registering a 12% drop, while flows to Africa and Latin America and the Caribbean remained more or less stable.
In particular, the report said flows to Africa remained flat, nearly unchanged in 2023 at an estimated $48 billion, marking a slight 1% decrease compared to the previous year.
It said: “The region saw an increase in greenfield project announcements, particularly in Morocco, Kenya and Nigeria.
“However, a significant one third reduction in project finance deals – higher than the global average – raises concerns for the future of infrastructure financing on the continent.”
It explained that “The decrease in FDI to developing regions last year occurred in a global context of weak investment and economic uncertainty.”
Although flows worldwide defied earlier expectations and grew by a marginal 3% in 2023 to an estimated $1.37 trillion, “the headline increase was due largely to higher values in a few European ‘conduit’ economies,” the report says.
Strikingly, when these conduit economies are excluded, global FDI flows show a steep 18% decline in 2023.
…significant risks, including geopolitical tensions, high debt levels in numerous countries and the threat of further global economic segmentation, all of which cast a shadow over the global investment landscape.
Developing Asia sees a sharp decline in FDI
In 2023, some major developing economies in Asia saw significant declines in FDI inflows but remained attractive destinations for greenfield projects – when a parent company starts a venture in a foreign country by constructing new operational facilities from the ground up.
China reported a rare 6% decrease in FDI inflows but saw 8% growth in new greenfield project announcements.
Similarly, India saw a 47% drop in FDI inflows but remained among the top five global destinations for greenfield projects.
FDI Flows to members of the Association of Southeast Asian Nations (ASEAN), normally an engine of FDI growth, declined by 16%. Yet the group remained attractive for manufacturing investments with a remarkable 37% increase in greenfield project announcements in nations like Viet Nam, Thailand, Indonesia,
Meanwhile, the report maintained a cautious optimism amidst global uncertainties, as looking ahead, it said 2024 could see a modest increase in FDI flows.
“Projections for inflation and borrowing costs in major markets indicate a stabilization of financing conditions for international investment deals,” it said.
But it equally warned of significant risks, including geopolitical tensions, high debt levels in numerous countries and the threat of further global economic segmentation, all of which cast a shadow over the global investment landscape.
