Foreign Direct Investment (FDI) flows to developing economies reached their lowest level since 2005, receiving just $435 billion in 2023 (the latest year for which data is available), mainly due to increased trade barriers and investment restrictions, the World Bank (WB) revealed .
According to an analysis, the international organization noted that advanced economies also recorded historic lows in FDI capture, registering $336 billion in 2023, the lowest figure since 1996.
As a percentage of their Gross Domestic Product (GDP), FDI inflows to developing economies in that year were only 2.3%, roughly half the level reached in 2008.
“It is no coincidence that FDI is reaching new lows at the same time that public debt is reaching historic highs. Private investment will now need to drive economic growth, and FDI is one of the most productive forms of private investment. However, in recent years, governments have been erecting barriers to investment and trade when they should be deliberately removing them. They will have to break this bad habit,” said Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group.
The World Bank report also highlighted that investment treaties increase FDI flows between signatory countries by more than 40 percent. However, between 2010 and 2024, only 380 new investment treaties entered into force , barely a third of the number recorded in the 1990s.
In 2023, FDI accounted for approximately half of the external financing flows received by developing economies, he noted.
Under favorable conditions, the report noted, a 10% increase in investment inflows can generate a 0.3% increase in real GDP after three years, and in countries with stronger institutions, better human capital, greater trade openness, and lower informality, this impact can be almost three times greater.
The analysis found that investment is concentrated in larger economies. Between 2012 and 2023, approximately two-thirds of FDI flows to developing economies went to just 10 countries : China received almost a third of the total, while Brazil received 10% and India 6%. Meanwhile, the 26 poorest nations received barely 2% of the total. Half of the flows came from the United States and the European Union.
Efforts to improve FDI
The World Bank identified three strategic priorities to reverse the trend and strengthen investment in developing economies.
The first is to redouble efforts to attract FDI , which is why he recommended relaxing the restrictions on FDI that have accumulated over the last decade, in addition to accelerating the investment climate.
The second is to expand the economic benefits of FDI . Promoting trade integration, improving the quality of institutions, fostering human capital development, and increasing the participation of more people in the formal economy are some of the measures that would help attract more FDI, according to the institution.
The third seeks to promote global cooperation , where all countries must collaborate to foster policy initiatives that help direct FDI flows toward developing economies with the greatest investment deficit.
Against this backdrop, representatives from governments, international institutions, and the private sector will meet in Seville, Spain, from June 30 to July 3, at the 4th International Conference on Financing for Development, to discuss how to mobilize the financing needed to achieve key development goals.
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