World Bank: FDI in Developing Nations Hits Lowest Since 2005

(MENAFN) World Bank data released on Monday paints a bleak picture for emerging markets, as foreign direct investment (FDI) plunged to just $435 billion in 2023 — marking the weakest inflow since 2005. The decline reflects mounting global trade restrictions and investment barriers, which are raising red flags for development prospects.

“These barriers pose a significant threat to global efforts to mobilize financing for development,” stated the World Bank, underscoring the gravity of the trend.

The downturn in capital flow isn’t limited to developing countries. Wealthier nations also saw a dramatic slowdown, with FDI falling to $336 billion — the lowest figure since 1996.

The Bank highlighted that FDI into emerging markets now represents only 2.3% of their GDP, a stark drop from the peak in 2008 when it was nearly double that amount.

A contributing factor to the slump is the dwindling number of new investment treaties. From 2010 to 2024, only 380 new agreements came into effect — merely a third of the volume seen in the 1990s. Trade deals have also lost momentum, with the number of new agreements dropping from an average of 11 per year in the 2010s to just six annually in the current decade.

Although foreign investments have long been touted as a key engine of economic development, the report points out that capital is heavily concentrated. Between 2012 and 2023, just ten countries absorbed about two-thirds of all FDI flowing into emerging markets. China alone accounted for nearly one-third, while Brazil and India took in 10% and 6%, respectively.

The World Bank urged governments to ease investment barriers and implement strategic policy reforms to restore investor confidence.

“What we’re seeing is a result of public policy,” said Indermit Gill, the World Bank Group’s chief economist and senior vice president. “It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs."

Ayhan Kose, the World Bank Group’s deputy chief economist and director of the prospects group, cautioned that the steep decline in FDI should raise serious concerns as the international community prepares for the upcoming Conference on Financing for Development.

“Reversing this slowdown is not just an economic imperative—it’s essential for job creation, sustained growth, and achieving broader development goals. It will require bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment," said Ayhan Kose, the World Bank Group’s deputy chief economist and director of the prospects group.

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