Global FDI rises by 3% in 2023

According to UNCTAD’s latest Global Investment Trends Monitor released on January 17, global foreign direct investment (FDI) defied earlier predictions, experiencing a 3% growth and reaching an estimated $1.37 trillion in 2023. However, the report reveals a nuanced picture, as the overall increase was primarily driven by a few European “conduit” economies acting as intermediaries for FDI directed to other nations.

Excluding these conduit economies, global FDI flows exhibited a steep 18% decline in 2023. The rest of the European Union witnessed a significant 23% decrease, while the United States, the leading FDI recipient globally, experienced a 3% dip.

The report highlights a worrisome decline in international investment project announcements, notably in project finance and mergers and acquisitions (M&As), which declined by 21% and 16%, respectively. Greenfield project announcements saw a 6% decrease in number but grew by 6% in value, particularly driven by manufacturing.

Looking ahead, the report suggests a possible modest increase in FDI flows in 2024, citing stabilisation in inflation and borrowing costs in major markets. However, it cautions against significant risks, including geopolitical tensions, mounting debt in several countries, and concerns about further economic fragmentation.

In the developing world, the overall FDI landscape in 2023 revealed a 9% decline, amounting to $841 billion. Developing Asian countries, including China and India, experienced a 12% decrease. Despite an unusual 6% drop in China’s FDI inflows, it reported an 8% growth in new greenfield project announcements. India, while witnessing a 47% drop in FDI inflows, remained among the top five global destinations for greenfield projects.

ASEAN, traditionally a key player in FDI growth, recorded a 16% decline. However, the region remained attractive for manufacturing investments, with a remarkable 37% increase in greenfield project announcements in countries like Viet Nam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia. FDI flows in Africa fell by a modest 1%, while Latin America and the Caribbean held steady, with Mexico experiencing notable growth.

The sectoral analysis for 2023 indicated an increase in project numbers in industries reliant on global value chains, such as automotive, textiles, machinery, and electronics. However, the renewable energy sector faced its first decline since the Paris Agreement in 2015, with a 17% decrease in new international project finance deals.

Concerns also extend to sustainable development, as the number of international investment projects aligned with Sustainable Development Goals (SDGs) remained stable in 2023. However, SDG-related international project finance deals showed a 27% decline in numbers and a 40% drop in value. On the positive side, greenfield projects aligned with SDGs saw a 12% growth in number and a 6% rise in value, with the food and agriculture sector showing marginal growth amid declines in most other sectors.