‘Conduit’ countries mask steep decline in FDI inflows for 2023, reveals report
Global foreign direct investment (FDI) defied earlier expectations for 2023, growing by 3% and finishing the year at an estimated $1.37 trillion, according to the United Nations Conference on Trade and Development’s (UNCTAD) latest Global Investment Trends Monitor published on 17 January.
However, the report highlights a key nuance – the overall uptick was driven mainly by a few European ‘conduit’ economies, which often act as intermediaries for FDI destined for other nations.
Strikingly, excluding these conduit economies reveals a steep 18% decline in global FDI flows in 2023. The rest of the European Union recorded a 23% decline, and the US – the world’s leading FDI recipient – saw a 3% dip.
The UNCTAD report also underscores a worrying decline in international investment project announcements last year, especially in project finance and M&A, which declined 21% and 16%, respectively. Meanwhile, greenfield project announcements dipped by 6% in number, but grew by 6% in value, bolstered in part by manufacturing.
The report’s sectoral analysis for 2023 shows an uptick in project numbers in sectors that rely heavily on global value chains, including automotive, textiles, machinery and electronics. Meanwhile, the semiconductor sector recorded a 10% decline in the number of greenfield projects and a 39% drop in their value, following robust growth in 2022.
Renewable energy concerns
The report also raises concerns about the renewable energy sector, which saw a 17% drop in new international project finance deals and a 10% decline in their value. This marked the first decline since the Paris Agreement in 2015.
In the US, as well as FDI inflows in 2023 being down by 3%, greenfield project numbers dropped by 2% and project finance deals by 5%. China reported a rare decline in FDI inflows (-6%), but showed growth in new greenfield project announcements (+8%). India reported a drop in FDI inflows (-47%), but stable numbers of new project announcements, keeping it in the top five global greenfield project destinations.
Meanwhile, in the United Arab Emirates greenfield announcements rose by 28% to the second highest number after the US. Greenfield numbers also jumped in Saudi Arabia, by 63%.
Looking ahead, the report says “a modest increase in FDI flows in 2024 appears possible”, citing stabilisation of inflation and borrowing costs in major markets. But it warns that significant risks persist, including geopolitical tensions, mounting debt in many countries, and concerns about further global economic fragmentation.