The report highlights 10 major changes in global foreign direct investment (FDI).
It reveals how the combination of structural changes in global value chains, external shocks like the COVID-19 pandemic, and rising geopolitical tensions are increasingly influencing investment decisions and hindering development. I am. Here are some important findings.
FDI struggles to keep pace with GDP
- Since 2010, global GDP and trade have continued to grow, but FDI and global value chain (GVC) growth has stagnated.
- The delay reflects increased investor vigilance as a result of changes in international production and global value chains, rising protectionism and rising geopolitical tensions. This highlights the vulnerability of developing countries that rely on FDI.
From manufacturing to service industry
- The share of cross-border greenfield projects in the service sector has risen to more than 80%, up from about 65% 20 years ago. Additionally, service-related investment in the manufacturing industry has almost doubled to about 70% due to technological advances.
Meanwhile, FDI in manufacturing has fallen sharply, with an average annual growth rate of -12% in the three years since the start of the pandemic. This decline is severely hampering developing countries’ efforts to leverage their participation in global value chains for economic development and industrial transformation.
Declining role of FDI in China
- The geography of global FDI has been significantly reshaped over the past two decades by China’s reduced role as a beneficiary country, a process that accelerated after the onset of the COVID-19 pandemic.
- Over the past three years, the number of greenfield projects in China has remained at about one-third of the same figure a decade ago.
- However, China continues to play a dominant role in global manufacturing and trade, and China’s “world factory” mode has not diminished, but rather from a globally integrated production network to a more domestically centric production network. This suggests that there has been a transition.
Geopolitical tensions increasingly impact FDI flows
- Investment between geopolitically distant countries, i.e. countries with different political interests and foreign policies, fell from 23% in 2013 to 13% in 2022.
- This trend particularly affected manufacturing industries as trade tensions began to intensify in 2019.
Increased investment in environmental technology…
- Investment in environmental technologies such as wind and solar energy is rapidly increasing. The share of total greenfield projects in non-service sectors has jumped from 1% in the early 2000s to 20% by 2023. Similarly, FDI in electric vehicle and battery manufacturing has grown at 27% annually over the past decade.
- However, this growth only partially offsets the decline in other manufacturing industries. Also, while this primarily benefits developed countries, least developed countries continue to suffer from declines in FDI in traditional sectors.
…but worsening feelings of alienation in developing countries
- Global investment flows are increasingly concentrated in developed countries and major emerging markets, exacerbating the economic vulnerabilities of small and less developed countries.
- The share of total greenfield FDI projects in LDCs has declined from 3% in the mid-2010s to just 1%. And the share of direct investment in developing countries that goes to low-income and lower-middle-income countries has fallen by one-third over the past decade.
Main recommendations
The report highlights the urgent need to align strategies with evolving investment trends so that the benefits of FDI are equitably shared and support broader development goals.
- For global institutions:
- Provide financial and strategic support to developing countries, especially least developed countries, to review their FDI and GVC-based development strategies and increase their FDI attractiveness.
- Strengthen international cooperation to manage geopolitical risks, reduce tensions and ensure a stable and open investment environment.
- For governments in developing countries
- Strengthen ties with neighboring countries and cooperate at the regional level to strengthen regional value chains.
- Promote investment in sustainable, green technologies and other sectors driven by sustainability imperatives and policy considerations that are less sensitive to changes in business dynamics and global value chains. Masu.
- Strengthen efforts to promote investment from small and medium-sized enterprises, including greater emphasis on investment promotion measures.
