FDI to developing nations fell to $435B in 2023, the lowest since 2005, making up only 2.3% of their GDP, World Bank reports.
in a new World Bank report, foreign direct investment (FDI) into developing economies increased to 21.7% the lowest level since 2005. The report released on Monday shows that FDI fell because the number of trade barriers increased, along with the number of barriers against foreign investment.
In 2023, their gross domestic product (GDP) distributed foreign direct investment (FDI) to developing countries comprised only 2.3% of the gross domestic product, equivalent to $435 billion. This represents a notable deviation from its highest level of 4.5 percent, recorded in 2008.
According to Indermit Gill, the World Bank‘s chief economist, this trend is a deliberate political move. He mentions that the global level of public debt has increased, and the scale of investments has also decreased. Gill indicated that the governments of the world have been implementing trade and investment barriers, which should have been abolished as they were intended to promote business activities and the transfer of financial resources within the economy.
Drop in Investment Agreements and Broader Economic Impacts
It can also be noted in the report that there has been a sharp decline in the conclusion of new investment treaties. The rate of making investment agreements and signing new ones, with only 380 new contracts entering into force from 2010 to 2024, is less than half of those signed during the past decade. These agreements would previously have been crucial in facilitating the international flow of capital and, therefore, reducing the private sector’s entry into the spheres of infrastructure, production and services in the new economies.
According to Ayhan Kose, Deputy Chief of the World Bank, the country should reverse the FDI slowdown to enable it to achieve its long-term development objectives. He pointed out that investment is highly substantial to productivity growth.
FDI also contributes to knowledge transfer, technology, and access to world supply chains. The benefits are immense for low-income economies and those with poor financial capabilities, enabling them to utilize foreign funds to sustain their growth. The current stagnation may limit these countries’ ability to finance social programs and infrastructure needs.
Poorest Nations Receive Minimal Investment Share
As the report reveals, the poorest nations receive only 2 percent of the worldwide investment in foreign direct investment. This is unfair, and the low proportion shows the increasing inequality in the distribution of the world’s capital.
Most of these countries’ financial spaces are already limited by inherent political instabilities and inadequate governance structures which erode investors’ confidence in their economic stability.
