Global foreign direct investment (FDI) reached an estimated $1.4 trillion in 2024, marking an 11% increase compared to the previous year, according to the United Nations Conference on Trade and Development (UNCTAD). This rebound in FDI was attributed to improved global economic activity, recovery in some key sectors, and the effects of significant multinational transactions in conduit economies. However, when flows through European conduit economies—jurisdictions often used as intermediary transfer points for investments—are excluded, the global FDI figure actually reveals an 8% decline, highlighting underlying vulnerabilities in the global investment landscape.

Developed Economies: Uneven Trends

FDI flows to developed economies surged by 43%, largely fueled by significant multinational transactions passing through conduit economies. Without these transactions, however, FDI in developed nations fell by 15%, revealing a stark contrast in the actual investment activity.

Europe:

The European Union, a key recipient of global FDI, experienced contrasting trends across its member states. Excluding conduit economies, FDI in the EU plummeted by 45%, with 18 out of 27 member states reporting declining inflows. Among the hardest hit were major economies such as Germany, which recorded a 60% drop in FDI, followed by Italy at 35%, Spain at 13%, and France at 6%. These declines were primarily attributed to increasing geopolitical tensions, slowing economic growth, and tightened monetary policies in the region. However, some smaller EU countries with established financial hubs remained resilient due to their role as investment conduits.

North America:

In contrast, FDI in North America demonstrated robust growth, increasing by 13%. The United States, as the largest recipient of FDI globally, saw a 10% increase in inflows. This growth was primarily driven by an 80% rise in mergers and acquisitions (M&A), as corporate consolidation became a key strategy for businesses looking to enhance market share and diversify portfolios amid economic uncertainties. Canada, too, reported a modest increase in FDI inflows, supported by its burgeoning technology and renewable energy sectors.

Developing Economies: Challenges Persist

While developed economies experienced mixed outcomes, developing economies faced mounting challenges, with FDI inflows declining by 2% in 2024. This decline marked the second consecutive year of reduced investments in these regions, exacerbating concerns about their ability to achieve the Sustainable Development Goals (SDGs). The reduction in investments poses significant risks to infrastructure development, industrial growth, and social progress.

Asia:

Developing Asia, a region that has traditionally been a strong performer in attracting FDI, witnessed a 7% drop in inflows. China, the region’s largest recipient of FDI, saw a sharp 29% decline, continuing a downward trend from the previous year. This drop reflects a combination of slowing economic growth, shifting global supply chains, and regulatory changes. FDI in China now stands 40% below its 2022 peak.

In contrast, India emerged as a bright spot in the region, recording a 13% increase in FDI. The growth was driven by a surge in greenfield project announcements, particularly in sectors such as information technology, renewable energy, and pharmaceuticals. The Association of Southeast Asian Nations (ASEAN) also posted a 2% increase in FDI, reaching a record $235 billion, supported by growing investments in the manufacturing and services sectors across member states such as Vietnam, Indonesia, and the Philippines.

Africa:

FDI inflows to Africa surged by 84%, reaching $94 billion in 2024. This remarkable increase was primarily attributed to a megaproject in Egypt’s Ras El-Hekma peninsula, which accounted for a significant share of the continent’s total FDI. Excluding this project, Africa still recorded a 23% rise in inflows, amounting to $50 billion. Key sectors driving FDI growth in Africa included renewable energy, mining, and telecommunications. Countries such as Nigeria, Kenya, and South Africa also benefited from increased investor interest in infrastructure development and digital transformation initiatives.

Latin America and the Caribbean:

In Latin America and the Caribbean, FDI declined by 9%, reflecting a combination of lower energy prices, political instability, and global economic headwinds. Brazil, the region’s largest economy, experienced a 5% decrease in FDI inflows. However, the country saw positive signs in greenfield project announcements, both in terms of number and value, which could signal a potential recovery in the coming years. Mexico and Colombia also faced declines, although targeted investments in manufacturing and logistics continued to offer opportunities for growth.

Sectoral Insights: A Complex Landscape

The report highlighted significant disparities across sectors, with certain industries showing resilience while others struggled to attract investments. This uneven performance underscores the complexities of the global FDI landscape.

Greenfield Investments:

Greenfield projects, a key indicator of long-term investor confidence, saw an 8% decline in the number of projects and a 7% drop in their total value. Despite this, investments in cutting-edge technologies such as semiconductors and artificial intelligence (AI) remained strong, helping to offset declines in traditional sectors. These investments reflect the growing importance of digital transformation and technological innovation as drivers of global economic growth.

International Project Finance:

International project finance, heavily concentrated in infrastructure development, continued to face significant challenges. The number of project finance deals fell by 26%, while their total value declined by nearly a third. This sharp downturn poses risks to critical infrastructure projects in developing regions, where such financing is essential for addressing gaps in transportation, energy, and water systems.

Cross-Border M&A:

Cross-border mergers and acquisitions (M&A) experienced a 13% decline in the number of deals. However, the total value of these deals rose by 2%, signaling a potential recovery from a two-year downward trend. This trend suggests that while the volume of transactions remains subdued, larger and more strategic deals are gaining traction as companies seek to adapt to changing market dynamics.

Outlook for 2025: Cautious Optimism

Looking ahead, UNCTAD forecasts moderate growth in global FDI for 2025, supported by improved financing conditions and an anticipated increase in M&A activities. However, significant risks and uncertainties persist, including geopolitical tensions, inflationary pressures, and potential disruptions to global supply chains. These factors are expected to weigh on investor confidence and could dampen the pace of recovery in certain regions and sectors.

Policy Recommendations: Promoting Sustainable Investment

To address the challenges highlighted in the report, UNCTAD emphasizes the need for governments to adopt policies that promote sustainable and inclusive investment. This includes creating transparent and efficient regulatory environments, enhancing digital infrastructure, and implementing investment facilitation measures. Additionally, UNCTAD calls for greater international cooperation to address systemic issues such as tax avoidance and profit shifting, which undermine the ability of countries to benefit fully from FDI.

Conclusion

The global FDI landscape in 2024 presents a mixed picture, with growth in some regions and sectors offset by declines in others. The disparities between developed and developing economies, coupled with sector-specific challenges, highlight the need for targeted policies and international collaboration to foster sustainable and inclusive investment growth. As the world navigates an era of heightened uncertainty, the role of FDI as a driver of economic development and global integration remains as critical as ever. With the right strategies, countries can harness the potential of FDI to build resilient economies and achieve long-term prosperity.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

23^rd January, 2025