Global foreign investment weak in 2023, funding for sustainable goals sectors drops over 10%

By United Nations Conference on Trade and Development

Global foreign investment weak in 2023, funding for sustainable goals sectors drops over 10%

In 2023, global foreign direct investment (FDI) decreased by 2% to $1.3 trillion, according to the latest World Investment Report released by UN Trade and Development (UNCTAD) on 20 June.

When excluding the impact of a few exceptions, the report reveals a sharper decline of over 10% in global foreign investments for the second consecutive year. This decline is driven by increasing trade and geopolitical tensions in a slowing global economy.

While the prospects for FDI remain challenging in 2024, the report says that “modest growth for the full year appears possible”, citing the easing of financial conditions and concerted efforts towards investment facilitation – a prominent feature of national policies and international agreements.

With the global push to attract and retain financial flows, online information portals and single windows have proliferated to foster a conducive business and investment climate.

For developing countries, digitalization not only provides a technical solution but also a stepping stone for wider digital government implementation to address underlying weaknesses in governance and institutions that often hinder investment.

“Investment is not just about capital flows; it is about human potential, environmental stewardship, and the enduring pursuit of a more equitable and sustainable world,” says UN Trade and Development Secretary-General Rebeca Grynspan.

Foreign investments declined moderately in most regions

FDI flows to developing countries fell by 7% to $867 billion last year, reflecting an 8% decrease in developing Asia. This figure dipped by 3% in Africa and by 1% in Latin America and the Caribbean.

On the other hand, flows to developed countries were strongly affected by the financial transactions of multinational enterprises, partly due to efforts to implement a global minimum tax rate on the profits of these corporations.

Inflows to most parts of Europe and North America were down by 14% and 5%, respectively. Foreign investments in structurally weak and vulnerable economies bucked the trend, increasing slightly across least developed countries, landlocked developing countries, and small island developing states.

Insufficient investment slows sustainable development

With tight financing conditions in 2023, the number of international project finance deals – crucial for funding infrastructure and public services such as power and renewable energy – fell by a quarter.

This triggered a 10% reduction in investment in sectors linked to the Sustainable Development Goals (SDGs), most notably impacting agrifood systems, and water and sanitation. These sectors registered fewer internationally financed projects in 2023 than in 2015, when the goals were adopted.

On the other hand, greenfield project announcements grew in developing countries by more than 1,000, but are highly concentrated in Asia.

Efforts needed to bolster sustainable finance

Meanwhile, the mobilization of funds for SDG investment through sustainable finance products in global capital markets is slowing down. Sustainable bonds showed marginal growth in 2023, whereas new inflows in sustainable investment funds dropped by 60%.

In this context, UN Trade and Development finds that greenwashing concerns related to misleading sustainability claims are increasingly affecting investor demand and calls for more systematic efforts to bring more clarity and credibility to the sustainable fund market. These include 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 both private sector development and FDI attraction in developing countries. The World Investment Report shows that in 2023, 86% of the investment policy measures adopted by these economies were favorable to investors.

Given the need for information access, transparency of rules and regulations, and the streamlining of administrative procedures, digital tools have become key to effective implementation.

Since UN Trade and Development launched its global action menu for investment facilitation in 2016, the number of online single windows in developing countries has almost quadrupled from 13 to 67. In developed economies, the number more than doubled from 12 to 28.

Similarly, information portals for business and investor registration in developing countries expanded from 82 in 2016 to 124 in 2024, while developed nations saw an uptick from 43 to 48.

Bottom-up, cost-effective approach to digital government

Additionally, facilitating business and investment supports the expansion of digital government services, complementing traditional top-down approaches.

By starting with basic services for business and gradually expanding to more institutions, countries can achieve economies of scale and scope with digital government tools, benefitting all businesses – both foreign and domestic, large and small.

Developing nations, in particular, can benefit from this bottom-up approach, which adds immediate value to users and revenue-generating potential for governments without needing major legislative changes.