Global FDI dips but hope for ‘modest growth’ emerges
Global foreign direct investment (FDI) declined by two per cent to $1.3 trillion in 2023, according to the latest World Investment Report by UN Trade and Development (UNCTAD).
Excluding a few outliers, the report reveals a steeper decline exceeding 10pc, marking the second consecutive year of falling investment. This trend reflects rising trade tensions, geopolitical friction, and a sluggish global economy.
While the immediate outlook for FDI remains challenging, UNCTAD suggests “modest growth for the full year” is possible in 2024. Easing financial conditions and concerted efforts by governments to streamline investment processes, a key theme in national policies and international agreements, could provide a boost.
Countries are increasingly deploying online information portals and single window systems to create a more attractive business environment. For developing economies, digitalisation goes beyond a technical solution; it’s a springboard for broader digital government initiatives that address weaknesses in governance and institutions, often cited as hurdles to investment.
“Investment is about more than just capital flows,” said UNCTAD secretary-general Rebeca Grynspan. “It’s about harnessing human potential, environmental stewardship, and the pursuit of a more equitable and sustainable world.”
Flows to developing countries fell 7pc to $867 billion in 2023. Developing Asia saw an 8pc decline, while Africa and Latin America and the Caribbean experienced 3pc and 1pc drops, respectively.
Developed economies faced a significant impact from financial transactions by multinational enterprises, partly due to the implementation of a global minimum corporate tax rate. Inflows to most of Europe and North America fell by 14pc and 5pc, respectively.
However, foreign investments in structurally weak economies, including least developed countries, landlocked developing countries, and small island developing states, bucked the trend, posting slight increases.
Tight financing conditions in 2023 dampened international project finance deals, crucial for infrastructure and renewable energy projects. This translated into a 10pc decline in investments linked to the Sustainable Development Goals (SDGs), particularly impacting agrifood systems, water and sanitation. These sectors witnessed fewer internationally financed projects in 2023 compared to 2015, when the SDGs were adopted.
Greenfield project announcements in developing countries, though concentrated in Asia, showed positive growth. However, the mobilisation of funds for SDG investment through sustainable finance products in global capital markets is slowing. While sustainable bonds saw marginal growth, new inflows into sustainable investment funds plummeted 60pc.
UNCTAD warns that “greenwashing” concerns, misleading claims about sustainability, are hindering investor demand. The report calls for stricter product standards, robust sustainability disclosures, external audits and third-party ratings to enhance clarity and credibility in the sustainable fund market.
Business and investment facilitation is central to attracting FDI and fostering private sector development in developing countries. The World Investment Report reveals that 86pc of investment policy measures adopted by these economies in 2023 were designed to attract investors.
Digital tools are playing a crucial role in streamlining administrative procedures, enhancing transparency of regulations, and facilitating access to information. Since UNCTAD launched its global investment facilitation action menu in 2016, the number of online single windows in developing countries has quadrupled, while information portals for businesses and investors have also expanded significantly.
The report emphasises that facilitating business and investment can also support the expansion of digital government services, complementing traditional approaches.
By starting with basic services and gradually expanding, developing countries can leverage digital tools to benefit businesses of all sizes, both domestic and foreign. This bottom-up approach can deliver immediate value to users and generate revenue for governments without requiring major legislative overhauls.
Source: https://www.gdnonline.com/Details/1315791
