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In 2023, global foreign investment weakened, while financing for sustainable development sectors fell by over 10 percent.
Globally, FDI flows fell by 2 percent over the year to $1.3 trillion. In developing countries, they fell by 7 percent to $867 billion.
- Foreign investment remains stagnant due to the global economic slowdown and rising geopolitical tensions.
- Insufficient financing hinders efforts to achieve the '2030 Agenda' and prompts policy action to sustain sustainable financing.
- Business facilitation and digital government solutions can facilitate an environment to address underinvestment.
According to the latest World Investment Report released on June 20, 2023, by the United Nations Trade and Development Organization (UNCTAD), global 'Foreign Direct Investment' (FDI) declined by 2 percent to $1.3 trillion. In this context, the report reveals a sharper decline in global FDI by more than 10 percent for the second year in a row, excluding the impact of a few exceptions. This decline is due to rising trade and geopolitical tensions in a slowing global economy.
While prospects for FDI remain challenging in 2024, the report says that "modest growth for the full year looks possible," citing loosening financial conditions and investment facilitation efforts highlighted in national policies and international agreements.
For developing countries, digitization is not just a technical solution but a stepping stone for broader digital government implementation to address fundamental weaknesses in governance and institutions that inhibit investment.
"Investment is not just about capital flows; it is about human potential, environmental stewardship, and the pursuit of a more just and sustainable world," said UN Secretary-General for Trade and Development Rebeca Grynspan.
Foreign Investment Declined Moderately in Most Regions
FDI flows to developing countries fell 7 percent to $867 billion last year, reflecting an 8 percent decline in developing Asia. They fell by 3 percent in Africa and 1 percent in Latin America and the Caribbean.
Conversely, the FDI trends in developed countries were significantly shaped by the financial activities of multinational corporations. This was partly due to their strategic responses to the global minimum tax rate on their profits, a policy that has been a subject of much debate and discussion.
Inflows to most of Europe and North America declined by 14 percent and 5 percent, respectively.
Foreign investment in structurally weak economies has reversed this trend, with a slight increase in the least developed countries, landlocked developing countries, and small island developing states.
Underinvestment Slows Sustainable Development
As financing conditions tightened in 2023, the number of international project finance agreements- vital for financing infrastructure and public services such as electricity and renewable energy - fell by a quarter. This triggered a 10 percent reduction in investments in sectors linked to the Sustainable Development Goals (SDGs), particularly those affecting agri-food systems and water and sanitation. The contrast is stark, with fewer internationally financed projects registered in these sectors in 2023 than in 2015, when the goals were adopted. On the other hand, greenfield project announcements increased by more than 1,000 in developing countries. Still, they were concentrated in Asia, signaling a shift in investment patterns that could have significant implications for sustainable development.
A Bottom-Up, Cost-Effective Approach to Digital Government
In this sense, business and investment facilitation complements traditional top-down approaches by supporting expanding digital government services.
The bottom-up approach to digital government, starting with basic services for business and gradually expanding to more institutions, offers a scalable solution. This scalability allows countries to achieve economies of scale and scope with digital government tools, benefiting all businesses, both foreign and domestic, large and small.
Developing countries, in particular, can benefit from this bottom-up approach, which delivers immediate value to users without the need for major regulatory changes and has the potential to generate revenue for governments.
