Global Foreign Direct Investment (FDI) fell by 2% to $1.3 trillion in 2023 due to economic slowdowns and rising geopolitical tensions, according to the World Investment Report 2024. This decline is more than 10% when excluding large fluctuations in a few European conduit economies. The drop in project finance significantly affected sustainable development, particularly in agrifood and water sectors, hindering progress towards the 2030 Agenda and necessitating urgent policy action. Business facilitation and digital government solutions are highlighted as ways to boost investment by creating a transparent and streamlined environment, especially benefiting developing nations.
FDI flows to developing countries decreased by 7% to $867 billion. Tight financing conditions caused a 26% fall in international project finance deals, which are crucial for infrastructure investment in the poorest countries. Global economic fragmentation, driven by crises and protectionist policies, is disrupting trade networks and investment flows, creating both challenges and isolated opportunities. Despite a tough outlook, the report suggests modest growth in 2024 is possible with eased financial conditions and improved investment facilitation.
Investments in global value chain-intensive manufacturing sectors like automotive and electronics are growing in regions with market access, but many developing countries struggle to attract investment. FDI flows to Africa fell by 3% to $53 billion, while flows to developing Asia dropped by 8% to $621 billion, including a rare decline in China. Latin America and the Caribbean saw a 1% decrease to $193 billion. However, FDI to structurally weak economies increased, with inflows to the least developed countries rising to $31 billion, although still concentrated among a few nations.
Tight financing conditions also led to a 26% downturn in international project finance for infrastructure. Investment in SDG-linked sectors fell by over 10%, with fewer projects in agrifood and water than in 2015. Sustainable finance growth is slowing, with marginal increases in sustainable bonds and a 60% drop in sustainable investment fund inflows. Greenwashing concerns are impacting investor demand, necessitating policy actions to address sustainability claims and reporting standards, which could affect small and medium enterprises in developing countries.
Investment facilitation efforts in developing countries remained strong, with 86% of measures in 2023 being favourable to investors. However, 57% of measures in developed countries were less favourable, often due to FDI screening for national security. Despite these challenges, investment facilitation reached a record 30% of all measures, targeting the services sector and renewable energy. New international investment agreements were fewer in 2023, and the reform of older treaties remains slow, increasing the risk of investor-State dispute settlement cases, particularly for developing countries.
Digital investment facilitation has expanded since 2016, with significant increases in online single windows and information portals. The report emphasizes that digital facilitation should extend beyond initial procedures to ensure transparency and efficiency. Broader digital government implementation can address governance issues, benefiting all businesses. Developing nations can particularly gain from a bottom-up approach, starting with basic business services and expanding to more institutions, capturing economies of scale and scope.
The decline in FDI and project finance highlights the urgent need for policy action to support sustainable development. Digital government solutions and investment facilitation are crucial for creating a transparent environment that benefits developing nations. Despite the challenges, there is potential for modest growth in 2024 with appropriate measures and reforms.
i(x) Net Zero plc (LON:IX) is an investing company which focusses on Energy Transition and Sustainability in the Built Environment, and was founded in 2015 by Trevor Neilson, Pär Lindström and Howard W. Buffett.
