Global foreign investment is slowing down
Large construction projects and other big plans usually mean a lot of jobs. Significant investments help local and foreign workers and business people boost their country's economy and contribute to global growth. However, this positive cycle is struggling to hold steady amidst ongoing geopolitical tensions. Russia's invasion of Ukraine and Israel's war against Hamas are destabilizing economies and affecting international relations. Other lesser-known conflicts are also causing significant disturbances. Moreover, the world is facing an economic slowdown, with rising inflation, energy shortages, and crises in raw materials.
On June 20, 2024, the UN's Trade and Development Agency (formerly known as UNCTAD) released its global investment report. The report highlights a concerning trend: global foreign investment is falling, which is hurting economies. It shows a 2% drop in foreign direct investment (FDI) in 2023, totaling $1.3 trillion. However, the real decline is closer to 10% if we adjust for large variations from certain European countries. FDI had already decreased by 10% in 2022. Despite these figures, the UN's report isn't sounding an alarm.
The report suggests that modest growth in global investments in 2024 is possible if countries implement the right policies. It urges countries to keep improving conditions for foreign investors. The report commends the progress in digital technology, particularly in developing countries, which makes investing easier. It also mentions a rise in helpful tools like one-stop shops and investor information portals. The report notes that in 2023, 86% of policy measures taken were investor-friendly.
FDI 2023: Regional trends
Foreign direct investment (FDI) has generally declined across most regions of the world. However, developed countries have seen a 9% increase in FDI, whereas developing countries experienced a 7% decrease. The report highlights that financial policies and the socio-political environment play crucial roles. Conflict, political instability, and weak institutions make it hard to implement sound economic strategies. Asia saw the most considerable reduction in FDI, with an 8% drop, followed by North America at 5%, Africa at 3%, and Latin America and the Caribbean at 1%.
Specifically, in Asia, FDI decreased dramatically in China (from $400 billion in 2022 to $33 billion in 2023) and India (from $49 billion in 2022 to $28 billion in 2023), which positively impacted Southeast Asia. In Africa, Egypt and South Africa drew the most FDI, with $9.84 billion and $5.23 billion, respectively. Central and North Africa faced the sharpest declines in FDI, with drops of 17% and 12%, respectively. Conversely, Southern Africa, including countries like South Africa, Lesotho, Tanzania, Namibia, and Angola, saw a 22% increase in FDI in 2023.
The impact of reduced FDI on job creation
Maintaining the 2030 Agenda is challenging with the current decrease in foreign direct investment (FDI). In September 2015, UN member countries launched the 2030 Agenda, a sustainable development program with 17 goals aimed at transforming the world. These goals focus on eliminating hunger and poverty, promoting inclusive economic growth, ensuring access to water and energy, enhancing sustainable development, fighting climate change, and fostering environmentally friendly industrialization.
The report indicates a significant drop in FDI from developed nations in sectors crucial to the 2030 Agenda. For instance, from 2022 to 2023, investment in renewable energy projects fell by 5%. The decline was even more pronounced in water-related operations, such as sanitation and sustainable management, with a 17% reduction in new projects.
Infrastructure sectors like transport, non-renewable energy production and distribution, and telecommunications, along with healthcare, also saw declines of 8% and 6% in new projects, respectively. Conversely, the agribusiness sector, which includes research and development as well as the production of pesticides, fertilizers, and other chemicals, experienced a 13% increase in projects.
Despite these downturns in key areas, developed countries still attracted more FDI than developing ones during 2022-2023. However, developing countries launched more new projects, particularly in Asia. Although FDI in Asia decreased overall, the region saw a significant 44% increase in the value of new projects.
The impact of reduced FDI on international mobility
Although the UN Trade and Development Agency hasn't released specific figures for international mobility, it's clear that a drop in foreign investments can affect corporate projects and opportunities for working abroad. With less investment, projects may be scaled down, slowed, or less ambitious.
For instance, Saudi Arabia's ambitious "The Line" project has faced challenges. Despite attempts to reassure investors and criticisms over its lavish spending and environmental impact, "The Line" and its futuristic city, Neom, are reducing their goals. Nonetheless, Saudi Arabia continues to pursue foreign talent, aiming to become a global innovation and startup hub with its "Vision 2030." Another project, SPARK, seeks to attract foreign tech experts to its industrial energy city.
Investment issues are also impacting other big infrastructure projects, like the tramway project in Quebec, which is currently on hold and has cut its budget by 25 million Canadian dollars. The initial cost, set at CA$613 million at the end of 2023, is now adjusted to CA$588 million.
Despite regional variations, the overall decrease in FDI doesn't completely stop major projects. Entrepreneurs are adapting to these challenges by modifying plans and revisiting older proposals, such as the ambitious tunnel project linking Africa and Europe under the Strait of Gibraltar. Led by Morocco, Spain, and Portugal, this project is expected to be completed before the 2030 World Cup.
These conditions create new job opportunities abroad, although companies are now more selective, favoring foreign specialists who can blend well with local talent. This shift means companies are restructuring to lower costs, often preferring to hire highly skilled foreign professionals.
