Global Foreign Direct Investment Declines By 2% To $1.3 Trillion In 2023, UNCTAD Reports

Global foreign direct investment (FDI) experienced a 2 percent decline, reaching $1.3 trillion in 2023, as reported by the latest World Investment Report from UN Trade and Development (UNCTAD). This decrease is more pronounced, exceeding 10 percent, when excluding significant fluctuations in investment flows within certain European conduit economies.

The downturn in project finance has notably impacted sustainable development, with new funding for Sustainable Development Goals (SDGs) sectors dropping by over 10 percent. This reduction is particularly evident in the agrifood and water sectors, posing challenges to achieving the 2030 Agenda. The report calls for urgent policy action to revamp sustainable development finance.

The report underscores that business facilitation and digital government solutions can mitigate low investment by creating a transparent and streamlined environment. Significant growth in online services and information portals supports broader digital government development, benefiting developing nations in particular.

Future Prospects for FDI

While the outlook for FDI remains challenging in 2024, the report suggests that "modest growth for the full year appears possible." This optimism is attributed to easing financial conditions and concerted efforts towards investment facilitation, which are key features of national policies and international agreements.

Digitalisation as a Stepping Stone

With a global push to attract and retain financial flows, online information portals and single windows have proliferated to foster a conducive business and investment climate. For developing countries, digitalisation offers not only a technical solution but also a stepping stone for wider digital government implementation. This approach addresses underlying weaknesses in governance and institutions that often hinder investment.

FDI Flows to Developing Countries

FDI flows to developing countries fell by 7 percent to $867 billion last year. This includes an 8 percent decrease in developing Asia, a 3 percent dip in Africa, and a 1 percent decline in Latin America and the Caribbean.

Impact on Developed Countries

In developed countries, FDI flows were significantly affected by financial transactions of multinational enterprises. This was partly due to efforts to implement a global minimum tax rate on corporate profits. Inflows to most parts of Europe and North America decreased by 14 percent and 5 percent, respectively.

"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," says UN Trade and Development Secretary-General Rebeca Grynspan.

With inputs from WAM