‘Alarm bells' for developing nations as 2023 FDI lowest since 2005
Foreign Direct Investment (FDI) into developing countries fell to $435 billion in 2023, the lowest in nearly 20 years, the World Bank said Monday, warning that rising trade and investment barriers posed a 'significant threat to global efforts to mobilise financing for development'.
According to the Bank, the fall in FDI into developing nations was part of a global trend that saw similar flows into advanced economies declining to $336 billion in 2023, the lowest level since 1996. 'What we're seeing is a result of public policy,' Indermit Gill, the World Bank Group's Chief Economist, said. 'It's not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs. Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment. Yet, in recent years governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down. They will have to ditch that bad habit.'
According to M. Ayhan Kose, the World Bank Group's Deputy Chief Economist, the sharp drop in FDI for developing countries 'should sound alarm bells'. Reversing the trend, Kose said, was not just an 'economic imperative' but also '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,' Kose said.
In 2022, FDI into emerging market and developing economies (EMDEs) stood at $690 billion.
While data for the 2023 calendar year is the latest available at a global level, FDI into India as per Reserve Bank of India (RBI) data increased to $81.04 billion in 2024-25 from $71.28 billion in 2023-24. However, net FDI into India – which adjusts the gross FDI number by deducting the funds repatriated by foreign investors and the investments made by Indian entities abroad – fell to just $353 million in the last fiscal from $10.13 billion in 2023-24.
Among EMDEs, China has been the biggest receiver of FDI from 2012 to 2023, accounting for nearly one-third of these inflows. Brazil was second at 10 per cent and India third at 6 per cent, the World Bank said.
According to the Bank, foreign investments are increasingly 'decoupling along geopolitical fault lines', with the US reducing its ties from China even as it increased trade and FDI links with India, Mexico, and Vietnam. 'Russia's invasion of Ukraine in 2022 was followed by rapid divestment by foreign firms from Russia,' the World Bank said in its report 'Foreign Direct Investment in Retreat'.
The release of the report on Monday comes ahead of the 4th International Conference on Financing for Development in Spain from June 30 to July 3. At the conference, representatives from governments, international institutions, civil society organisations, and the private sector are expected to discuss how to mobilise funds to achieve key global and national development goals at a time when global growth is slowing down, public debt is at record highs, and foreign aid budgets have been cut. Last week, the World Bank cut its global growth forecast for 2025 by 40 basis points to 2.3 per cent – the lowest since 2008 outside of outright global recessions – with Indermit Gill warning that outside of Asia, the developing world was becoming a 'development-free zone'.
According to the World Bank, developing economies must redouble their efforts to attract FDI, starting with relaxing restrictions from the last decade and rapidly improving the investment climate.
In addition, amplifying the economic benefits of FDI and advancing global cooperation were also identified as policy priorities. 'All countries should work together to accelerate policy initiatives that can help direct FDI flows to developing economies with the largest investment gaps,' the Bank said.
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