Global foreign investment is falling
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Global foreign investment is falling

How does today's climate of international chaos and uncertainty serve as a business barometer for foreign investment?

Foreign investment has declined globally by 2% to $1.3 trillion (44 trillion baht) for 2023. Yet, in developing countries, the dip was much deeper as investment flows fell by 7% to $867 billion.

These numbers from the UN's latest World Investment Report 2024 underscore both a cautious recovery from the pandemic and, even more so, the results of international political discord, civil conflict, and investor nervousness.

The report released by the UN Trade and Development (UNCTAD) asserts, "Foreign investment remains subdued amid the global economic slowdown and rising geopolitical tensions."

But as UN Secretary-General Antonio Guterres cautioned in the report, "Global and regional crises, trade tensions and tighter financing conditions have had a chilling effect on foreign direct investment, which remained subdued in 2023 for a second year in succession."

Foreign direct investment, labelled as FDI, in other words, investment flows into another country, has long been one of the key indicators of economic growth and prosperity worldwide.

Yet the numbers, with the exception of Southeast Asia, have either fallen in many developing economies or stayed static, such as in Europe.

Developed economies worldwide, however, saw a 9% rise in investment up to $464 billion.

The report underscores, "Industry trends showed lower investment in the infrastructure and digital economy sectors, but strong growth in the global value chain-intensive sectors of manufacturing and critical minerals."

Latin America and the Caribbean experienced strong investment spurred by global demand for commodities and minerals critical for clean energy technologies.

The report cites, "Investment in renewable energy was also prominent, with four of the top 10 announced projects relating to the production of green hydrogen or green ammonia." Commodities and minerals are the key combination, especially in South America.

Investment regionally last year reached $193 billion.

Interestingly, the top FDI investors included the United States, Spain, the Netherlands and South Korea.

The African continent, on the other hand, continues to suffer the undertow of the global slowdown; FDI flows to African countries declined by 3% to $53 billion.

Yet, viewing specific countries, inflows to South Africa declined by 43%.

In Africa, the top foreign investors remain the Netherlands, France, the United States, the United Kingdom, and China.

Among the largest investments announced include one establishing a $6.4 billion electric vehicle battery manufacturing facility in Morocco.

Foreign direct investment in developing Asia fell by 8% to $621 billion last year. Significantly, China, the second largest FDI recipient in the world, saw a rare decline in investments.

Sizable declines were recorded in India and Indonesia, too. Overall, South Asia saw investment declines of 37%. FDI inflows to Southeast Asia, however, stayed stable.

The top foreign investors throughout Asia overwhelmingly remain China, Hong Kong, the United States, Japan, and South Korea.

In 2023, in the United States, FDI inflows declined by 6% to $311 billion, but FDI in other developed countries, including Australia, Japan and South Korea, dropped sharply.

China slipped as well to $163 billion.

"In a world grappling with global and regional crises, the delicate balance of foreign direct investment (FDI) hangs precariously," warns UNCTAD's Rebeca Grynspan.

But beyond geopolitical crises, equally, the global undertow of inflation, excessive regulation and corruption certainly affect the investment climate and certainly decisions.

Thus, while still necessary and usually beneficial for socio/economic development and betterment, investments must balance risk and reward during these uncertain times.

John J Metzler is a United Nations correspondent covering diplomatic and defence issues. He is the author of 'Divided Dynamism: The Diplomacy of Separated Nations; Germany, Korea, and China'.

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