Global foreign direct investment (FDI) defied earlier expectations for 2023, growing by 3% and finishing the year at an estimated US$1.37 trillion, according to UNCTAD's latest Global Investment Trends Monitor.

The UNCTAD report noted, however, that the overall uptick was driven mainly by a few European "conduit" economies, which often act as intermediaries for FDI destined for other nations.

"Strikingly, when these conduit economies are excluded, global FDI flows show a steep 18% decline in 2023," it said. The rest of the European Union recorded a steep 23% decline, and the United States, the world's leading FDI recipient, saw a 3% dip.

The UNCTAD report also underscored a "worrying decline" in international investment project announcements last year, especially in project finance and M&As, which declined 21% and 16%, respectively.

The report said, meanwhile, greenfield project announcements dipped by 6% in number but grew by 6% in value, bolstered in part by manufacturing.

Looking ahead, the report says, "a modest increase in FDI flows in 2024 appears possible", citing stabilization for inflation and borrowing costs in major markets.

But it warns that significant risks persist, including geopolitical tensions, mounting debt in many countries and concerns about further global economic fragmentation.

Developing Asia’s FDI engine slows

The UNCTAD report noted that the overall FDI landscape for developing countries in 2023 revealed a 9% decline, amounting to US$841 billion.

Developing Asian countries bore the brunt, with a 12% decrease — with China reporting an "unusual" 6% drop in FDI inflows but showed an 8% growth in new greenfield project announcements.

India, another regional giant, saw a 47% drop in FDI inflows but remained among the top five global destinations for greenfield projects.

The Association of Southeast Asian countries (ASEAN), traditionally an engine of FDI growth, recorded a 16% decline.

UNCTAD said despite this, the region remained attractive for manufacturing investments, with a remarkable 37% increase in greenfield project announcements in nations like Vietnam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia.

Conversely, FDI flows fell by a modest 1% in Africa and held steady in Latin America and the Caribbean, thanks in part to increases in Central America and 21% growth in Mexico, the region’s second-largest economy.