Foreign direct investment (FDI) has experienced a continued downturn in 2023, with global investments decreasing by 2% to $1.3 trillion, according to the latest World Investment Report from the UN Trade and Development (UNCTAD). This marks the second consecutive year of decline, exacerbated by escalating geopolitical tensions and a sluggish global economy.
The report highlights a more pronounced drop of over 10% in foreign investments when accounting for certain anomalies, underscoring the impact of heightened trade and geopolitical conflicts. Digital solutions are increasingly being employed to create a more inviting business environment. Online information portals and single-window systems are growing, aimed at addressing investment challenges by streamlining procedures and improving access to information. For developing countries, digitalisation represents not only a technical fix but also a chance to address deeper governance issues that often stymie investment.
UN Trade and Development Secretary-General Rebeca Grynspan emphasised the broader significance of investment: “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.”
Regional Trends and Impacts
FDI flows to developing countries fell by 7% in 2023, totaling $867 billion. The decline was particularly notable in developing Asia, where investments decreased by 8%. Africa and Latin America and the Caribbean also saw reductions of 3% and 1%, respectively.
In developed regions, investment flows were significantly affected by financial transactions of multinational corporations and the implementation of a global minimum tax rate. Europe and North America experienced declines of 14% and 5% in FDI, respectively.
Notably, structurally weak and vulnerable economies showed resilience, with slight increases in FDI to least developed countries, landlocked developing nations, and small island states.
Sustainable Development Goals Under Pressure
The drop in international project finance deals, critical for infrastructure and public services, had a notable impact on funding for Sustainable Development Goals (SDGs). Investment in SDG-related sectors, including agrifood systems and water and sanitation, decreased by 10% in 2023 compared to 2015, when the SDGs were adopted.
Despite this, greenfield project announcements in developing countries increased by over 1,000, though these projects were predominantly concentrated in Asia.
Challenges and Opportunities in Sustainable Finance
The mobilisation of funds for SDGs through sustainable finance products has slowed. Growth in sustainable bonds was minimal, and new investments in sustainable funds plummeted by 60%. Concerns over greenwashing—misleading claims about sustainability—are affecting investor confidence. To counter this, there is a growing call for clearer standards, robust disclosures, and external audits to enhance the credibility of sustainable finance.
Advancing Investment Facilitation
Effective business and investment facilitation remains crucial for attracting FDI, particularly in developing countries. In 2023, 86% of investment policy measures in these economies were investor-friendly. Digital tools are playing a pivotal role in this area, with the number of online single windows in developing countries increasing nearly fourfold since 2016. Developed economies also saw a substantial rise in such tools.
Furthermore, the expansion of information portals for business and investor registration reflects a global push towards improved investment facilitation, enhancing transparency and accessibility.
Embracing Digital Government Solutions
Digital government solutions are proving effective, particularly for developing countries. By starting with fundamental business services and expanding over time, countries can achieve significant efficiencies and benefits, both for foreign and domestic businesses. This approach offers immediate value and revenue potential without necessitating major legislative changes.
