Geopolitical crises and interest rate worries dampened global foreign direct investment (FDI) last year, according to a new report by the United Nations Conference on Trade and Development (Unctad); estimated global FDI reached $1.37 trillion in 2023, a 3% increase over 2022, with developing countries feeling the most contraction. Despite recessionary fears early in the year, the global total ended 2023 in positive territory.
While multiple markets could use a boost from foreign investors in 2024, the outlook for banks and financial institutions supporting FDI remains uncertain. Last year, international project finance and M&A suffered the most from higher financing costs, with 21% and 16% fewer deals respectively, Unctad notes.
Even the US saw inflows decline by 3% in 2023, greenfield projects by 2%, and project finance deals by 5%. The EU, by contrast, saw FDI inflows jump dramatically from a negative $150 billion in 2022 to a positive $141 billion. But this was attributable to large swings in Luxembourg and the Netherlands; excluding these two countries, EU inflows were down 23%.
China saw a 6% decline in FDI, although announcements of greenfield projects—previously undeveloped sites for commercial development—increased by 8%. The country is beset by shadow banking concerns and an overleveraged real estate market.
Hopes that reforms in India would attract new attention from foreign investors faded as FDI flows fell 47%. Corporate scandals, such as the allegations levelled against the Adani Group, have fueled worries over transparency, but Unctad predicts that stable numbers of new project announcements will maintain India’s status as one of the top five global greenfield project destinations.
Southeast Asia, normally a FDI hotbed, came under pressure as Unctad found FDI in the ASEAN bloc declined by 16%. The region’s attractiveness as a cheaper alternative to Chinese manufacturing stoked a 37% jump in greenfield project announcements, however, with strong growth in Vietnam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia. And despite Middle East turmoil, the UAE posted a 28% rise in greenfield announcements while those in Saudi Arabia jumped 63%. Flows to Africa remained flat, however, and in Latin America, Brazil reported a 22% decline in FDI.
