By our staff reporter
In 2023, global foreign direct investment (FDI) flows reached approximately $1.37 trillion, showing a modest increase of 3% compared to 2022. This growth defied initial expectations of a recession, as economic uncertainty and higher interest rates did have an impact on global investment. The headline increase was primarily driven by higher values in certain European economies. However, when excluding these economies, global FDI flows actually decreased by 18%.
Developed countries saw a significant shift in FDI within the European Union. The FDI in the EU went from a negative $150 billion in 2022 to a positive $141 billion, largely due to notable changes in Luxembourg and the Netherlands. However, if we exclude these two countries, FDI inflows to the rest of the EU decreased by 23%, with several major recipients experiencing declines. In other developed nations, FDI remained stagnant, with no growth in North America and declines seen elsewhere.
FDI flows to developing countries experienced a 9% decline, totaling $841 billion. Most regions witnessed either declining or stagnant FDI flows. Developing Asia saw a 12% decrease in FDI, while Africa experienced a 1% decline. Latin America and the Caribbean remained stable, with Central America showing positive growth and defying the overall trend.
International investment project announcements, including greenfield projects (mainly in the industry sector), project finance (mainly infrastructure), and cross-border mergers and acquisitions (M&As), were mostly negative. Higher financing costs in 2023 had a significant impact on international project finance and M&A deals, resulting in a decrease of 21% and 16%, respectively. The number of greenfield project announcements also decreased by 6%, but their overall value increased by 6%, particularly in the manufacturing sector, indicating the beginning of a recovery from a long-term declining trend.
Key trends among the top FDI recipient economies include a decrease in international investment project announcements across developed regions. M&A values were $280 billion lower than in 2022, directly impacting FDI flows. Project finance deals saw a decrease of $157 billion. Lower values of greenfield project announcements will also affect FDI flows in 2024.
In the United States, the largest recipient of FDI, inflows in 2023 decreased by 3%, while greenfield project numbers declined by 2% and project finance deals decreased by 5%.
China reported a rare decline in FDI inflows (-6%), but it showed growth in new greenfield project announcements (+8%).
ASEAN, which is typically a driver of FDI growth, experienced a 16% decline in FDI. However, the region remained attractive for manufacturing investments, with a 37% increase in greenfield project announcements. Countries such as Vietnam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia demonstrated strong growth in this sector.
India reported a significant drop in FDI inflows (-47%), but the number of new project announcements remained stable, securing its position as one of the top five destinations for global greenfield projects.
In West Asia, FDI remained stable (+2%) due to continued robust investment in the United Arab Emirates. The country saw a 28% increase in greenfield project announcements, the second-highest number globally. Saudi Arabia also experienced a significant jump of 63% in greenfield numbers.
FDI flows to Africa remained relatively flat, estimated at $48 billion (-1%). Greenfield project announcements increased, primarily driven by Morocco, Kenya, and Nigeria. However, project finance deals decreased by one-third, surpassing the global average decline, which weakens prospects for infrastructure finance flows.
In Latin America, Brazil reported a 22% decrease in FDI inflows. While greenfield project numbers remained steady, international project finance experienced a sharp decline, with 40% fewer deals compared to 2022. On the other hand, Mexico saw an increase in FDI and further growth in new greenfield project announcements, solidifying its position as one of the top FDI recipients globally.
