Foreign Direct Investment (FDI) to Developing Economies Plummet to Lowest Level Since 2005

Strategic Insights -

Foreign direct investment (FDI) to developing economies has reached a record low, with inflows dwindling to just $435 billion in 2023, the lowest level since 2005. This decline is largely due to rising trade and investment barriers, which pose a significant threat to global efforts to mobilize financing for development. The World Bank report highlights that FDI tends to be concentrated in the largest economies, with China receiving nearly a third of the total and Brazil and India receiving roughly 10% and 6% respectively. The 26 poorest countries, mostly in Africa, received barely 2% of the total.

Key Takeaways:

  • FDI inflows to developing economies dropped to $435 billion in 2023, the lowest level since 2005, amid rising trade and investment barriers.
  • High-income economies received just $336 billion in 2023, the lowest level since 1996.
  • Nigeria's FDI for the second quarter of 2024 dropped to $29.83 million, marking the lowest level recorded based on available data up to 2013.
  • Reforms by the Central Bank of Nigeria (CBN) led to increased foreign exchange inflows, mainly driven by foreign portfolio investment (FPI).
  • Between 2012 and 2023, about two-thirds of FDI flows to developing economies went to just 10 countries.
  • The 26 poorest countries, mostly in Africa, received barely 2% of the total FDI.
  • FDI tended to be concentrated in the largest economies, with China receiving nearly a third of the total and Brazil and India receiving roughly 10% and 6% respectively.
  • Investment treaties, which tend to boost FDI flows between signatory states by more than 40%, have dwindled to just 380 new terms between 2010 and 2024.
  • Countries that are more open to trade tend to receive more FDI, with an extra 0.6% increase in FDI for each percentage-point increase in the trade-to-GDP ratio.
  • The World Bank Group's Chief Economist and Senior Vice President, Indermit Gill, attributed the decline in FDI to public policy, stating that governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down.
  • The World Bank has identified three policy priorities for developing economies to attract FDI: speeding up improvements in the investment climate, amplifying the economic benefits of FDI through trade integration and institutional improvement, and advancing global collaboration to accelerate policy initiatives.
  • The latest estimates have indicated that nearly 2.8 billion of the world's population of 8.2 billion people are unable to afford a healthy diet, which costs roughly $3.96 per person per day in 2022, expressed in current purchasing power parity (PPP) dollars.

Statistics:

  • FDI inflows to developing economies dropped to $435 billion in 2023, the lowest level since 2005.
  • High-income economies received just $336 billion in 2023, the lowest level since 1996.
  • Nigeria's FDI for the second quarter of 2024 dropped to $29.83 million.
  • 26 poorest countries received barely 2% of the total FDI.
  • 2.8 billion people worldwide are unable to afford a healthy diet.
  • The cost of a healthy diet is approximately $3.96 per person per day in 2022, expressed in current purchasing power parity (PPP) dollars.

Sources:

  • World Bank report (no specific date mentioned)
  • Food and Agriculture Organisation (FAO)
  • United Nations (UN)
  • International Comparison Program
  • World Bank's Development Data Group
  • World Bank Group's Chief Economist and Senior Vice President, Indermit Gill
  • World Bank's Deputy Chief Economist and Director of the Prospects Group, M. Ayhan Kose