Geopolitical crises and interest rate concerns weakened global foreign direct investment (FDI) last year, according to a new report from the United Nations Conference on Trade and Development (UNCTAD); Global FDI is estimated to reach $1.37 trillion in 2023, up 3% from 2022, with developing countries feeling the biggest decline. Despite recession fears at the start of the year, global results ended 2023 in positive territory.
While many markets could benefit from support from foreign investors in 2024, the outlook for banks and financial institutions supporting FDI remains uncertain. Last year, international project finance and mergers and acquisitions suffered the most from rising financing costs, with the number of deals falling by 21% and 16% respectively, UNCTAD said.
Even in the US in 2023, inflows were down 3%, greenfield projects down 2%, and project finance deals down 5%. In the EU, by contrast, FDI inflows jumped from negative $150 billion in 2022 to positive $141 billion. But this was due to large fluctuations in Luxembourg and the Netherlands; excluding these two countries, inflows into the EU fell by 23%.
China saw a 6% decline in foreign direct investment, although new project announcements (previously untapped commercial development sites) increased by 8%. The country is plagued by shadow banking problems and an overleveraged real estate market.
Hopes that India’s reforms will attract new attention from foreign investors have faded as FDI flows fell by 47%. Corporate scandals such as the allegations leveled against the Adani Group have heightened concerns about transparency, but UNCTAD predicts a steady number of new project announcements will maintain India’s status as one of the world’s top five destinations for new projects.
Southeast Asia, usually a hotbed of FDI, came under pressure as UNCTAD found FDI in the ASEAN bloc fell by 16%. The region’s attractiveness as a lower-cost alternative to Chinese manufacturing led to a 37% increase in new project announcements, with strong growth in Vietnam, Thailand, Indonesia, Malaysia, the Philippines and Cambodia. And despite the turmoil in the Middle East, the UAE recorded a 28% increase in new development announcements and Saudi Arabia a 63% increase. However, flows to Africa remained stagnant, and in Latin America, Brazil reported a 22% decline in FDI.