Global foreign investment weak in 2023, funding for sustainable development sectors drops over 10%
The World Investment Report by UN Trade and Development (UNCTAD) shows a 2% decrease in global foreign direct investment (FDI) to $1.3 trillion in 2023, driven by increasing trade and geopolitical tensions in a slowing global economy.
The report suggests that modest growth for the full year may be possible due to easing financial conditions and investment facilitation efforts. Online information portals and single windows have been used to foster a conducive business and investment climate. Digitalization can also provide a technical solution for developing countries and help address governance weaknesses that often hinder investment. UN Trade and Development Secretary-General Rebeca Grynspan emphasizes that investment is not just about capital flows but also about human potential, environmental stewardship, and the pursuit of a more equitable and sustainable world.
Foreign investments declined moderately in most regions
Global foreign direct investment (FDI) flows declined by 2% to $1.3 trillion in 2023, with developing countries experiencing a sharper 7% drop to $867 billion. FDI inflows fell moderately in most regions, with Europe and North America seeing declines of 14% and 5%, respectively. However, FDI to structurally weak and vulnerable economies, such as least developed countries, landlocked developing countries, and small island developing states, increased slightly.
Insufficient investment slows sustainable development
The report highlights that insufficient investment is slowing progress towards achieving the Sustainable Development Goals (SDGs). Investment in sectors linked to the SDGs, such as agrifood systems, water, and sanitation, declined by 10% in 2023 compared to 2015. The number of international project finance deals, crucial for funding infrastructure and public services, fell by a quarter.
Efforts needed to bolster sustainable finance
Sustainable bonds showed marginal growth in 2023, while new inflows in sustainable investment funds dropped by 60%. The report calls for more systematic efforts to bring clarity and credibility to the sustainable fund market, including well-defined product standards, robust sustainability disclosures, external auditing, and third-party ratings.
Global push for investment facilitation
Business and investment facilitation is central to private sector development and FDI attraction in developing countries. In 2023, 86% of the investment policy measures adopted by these economies were favorable to investors. Digital tools, such as online single windows and information portals, have become key to effective implementation.
Bottom-up, cost-effective approach to digital government
The report suggests that developing countries can benefit from a bottom-up, cost-effective approach to digital government by starting with basic services for business and gradually expanding to more institutions. This approach can achieve economies of scale and scope with digital government tools, benefiting all businesses – both foreign and domestic, large and small.
In conclusion, the report highlights the need for policy action to address the decline in foreign investment and keep up sustainable finance. Business facilitation and digital government solutions can facilitate an environment to attract and retain investment, which is crucial for achieving the 2030 Agenda for Sustainable Development.