Foreign direct investment (FDI) flows to developing countries witnessed a 9% downturn, reaching $841 billion in 2023, as revealed by the latest Global Investment Trends Monitor by the United Nations Conference on Trade and Development (UNCTAD), published on January 17.
While developing countries in Asia bore the brunt of the decline with a 12% drop, FDI flows to Africa and Latin America and the Caribbean remained relatively stable despite the challenging global economic environment.
The global context of weak investment and economic uncertainty played a significant role in the overall decrease in FDI to developing regions throughout the last year.
Contrary to initial expectations, global FDI flows defied projections and showed a marginal 3% growth in 2023, estimated at $1.37 trillion. However, the report highlights that this headline increase was largely due to higher values in a few European "conduit" economies. Excluding these conduit economies, global FDI flows reveal a steep 18% decline in 2023.
Developing Asia, a region of particular interest, witnessed a sharp decline in FDI flows. Major economies like China reported a rare 6% decrease in FDI inflows, although greenfield project announcements experienced an 8% growth. India, while facing a 47% drop in FDI inflows, remained among the top five global destinations for greenfield projects.
In Southeast Asia, FDI flows to members of the Association of Southeast Asian Nations (ASEAN) declined by 16%, but the region remained attractive for manufacturing investments, showing a remarkable 37% increase in greenfield project announcements.
West Asia experienced stable FDI flows at 2%, driven by sustained investments in the United Arab Emirates and a significant rise in greenfield announcements in Saudi Arabia.
Africa's FDI flows remained nearly unchanged at an estimated $48 billion, with greenfield project announcements increasing in Morocco, Kenya, and Nigeria. However, a one-third reduction in project finance deals raises concerns for future infrastructure financing on the continent.
In Latin America, Brazil recorded a 22% decrease in FDI inflows, while Mexico saw a 21% increase, solidifying its position as a top global recipient.
Looking forward to 2024, the UNCTAD report cautiously predicts a modest increase in FDI flows. Projections for inflation and borrowing costs indicate a potential stabilization of financing conditions for international investment deals. However, the report emphasizes significant risks, including geopolitical tensions, high debt levels, and the threat of further global economic segmentation, casting a shadow over the global investment landscape.
