Latest news with #developingEconomies
Zawya
2 days ago
- Business
- Zawya
Global project finance drops 26% in 2024, hitting developing economies and SDG sectors
International project finance (IPF), a key financing mechanism for large-scale infrastructure and sustainable development projects, declined by 26 percent globally in 2024, continuing a steep downward trend that began the previous year, the UN Conference on Trade and Development (UNCTAD) said in its latest World Investment Report. The 2025 report, issued on Thursday, attributed the drop to tightening financial conditions, including rising interest rates, exchange rate volatility, and heightened investor risk aversion. These constraints have particularly impacted capital-intensive infrastructure projects in developing economies. IPF typically supports large-scale investments in utilities, transport, communications, and renewable energy - sectors closely tied to the Sustainable Development Goals (SDGs). The IPF downturn in 2024 led to a 9 percent drop in infrastructure project numbers. Announcements in renewable energy fell 12 percent, while projects in critical minerals dropped by nearly 50 percent. In extractive industries, financing constraints and environmental scrutiny have led to a more selective approach by sponsors and lenders. Several large mining and energy infrastructure projects in Africa and in Latin America have faced delays caused by environmental permitting. While most infrastructure-related sectors saw investment slowdowns, digital infrastructure was a notable exception. Project numbers rose by 4 percent, and broader digital sectors, including platforms and services, recorded a 17 percent increase in deals and a doubling of total value. This reflects sustained investor interest in digital transformation, even amid challenging financing conditions. Disproportionately affected UNCTAD highlighted that developing countries - especially low-income and frontier markets - were hit hardest with IPF deals falling by 23 per cent in 2024. This decline was driven by high debt levels, tighter financing conditions and growing investor caution, particularly in frontier and low-income markets. Developed economies experienced a continued decline, with IPF down 29 percent overall and by 35 percent in North America. In Least Developed Countries (LDCs), IPF values dropped by 74 percent, and deal numbers fell 41 percent significantly more pronounced than the global average. Malawi, Rwanda and Zambia emerged as outliers. IPF deals in LDCs (Landlocked LDCs) declined in both number (25 per cent) and value (40 per cent). The downturn was particularly severe in African LLDCs, where the value of total financing plummeted by 57 per cent to $3.8 billion. Small Island Developing States (SIDS) bucked the trend, with a 14% increase in IPF value to $5.3 billion in 2024 in only a small number of deals. Driving the increase in value was a $2 billion project supported by the International Finance Corporation in Jamaica, which will cover several PPPs across various infrastructure sectors. In terms of regions, in developing Asia, the number of IPF deals declined 27 percent, but total project value dropped a sharper 43 percent, indicating reduced investor appetite for large-ticket infrastructure. The region's decline was attributed to elevated capital costs and increased risk perceptions related to fiscal and political conditions. West Asia stood out as the only subregion to show growth in IPF, with a 5% increase in value to $78 billion. The rise was supported by strong infrastructure and energy activity in the United Arab Emirates, Saudi Arabia, and Iraq. [UNCTAD applies the UN's M49 statistical standard, in which the Middle East' is officially classified as Western Asia, which is included in Developing Asia region.] Africa presented a mixed picture. While project numbers fell 3 percent, total IPF value rose 15 percent, driven by a handful of major energy and transport deals, especially in Egypt. The country accounted for four of the region's seven major renewable energy projects in 2024, totalling about $17 billion. These included a $3.8 billion undersea transmission line, a $2.5 billion hybrid solar-wind plant, and a $2.2 billion onshore wind project. Other notable deals included green hydrogen projects in Egypt and Tunisia and two large wind and solar projects in Namibia. Morocco also attracted a green ammonia and synthetic fuel production project involving investors from China, France, and the U.S. Sectoral implications IPF in infrastructure sectors, including transport and utilities, experienced a sharp decline in 2024 as rising interest rates, inflationary pressures and tighter global financial conditions reduced the availability of long-term capital. The IPF downturn was most pronounced in SDG-aligned infrastructure sectors. Goals investment in: Infrastructure dropped by 35 percent Renewable energy fell by 31 percent Water and sanitation dropped 30 percent Agrifood systems fell by 19 percent The health sector was the only area with growth, with project values and numbers up by 20 percent, though the sector remains relatively small in overall financing terms (at $15 billion). Noting that value of IPF deals fell by more than 40 per cent between 2021 and 2024, UNCTAD warned that the slump threatens progress toward the SDGs, especially in goals-aligned sectors such as renewable energy, sustainable transport and critical infrastructure, where IPF provides the majority of external financing. It said the slump disproportionally affected LDCs, which rely more on international sources of finance for infrastructure projects. SDG-related investment in the LDCs dropped by almost 90 per cent in 2024. Ahead of the Fourth International Conference on Financing for Development in July, the Report called for stronger roles by governments, multilateral development banks, risk insurance providers, and institutional investors to revive IPF flows, particularly in high-impact sectors. (Writing by SA Kader; Editing by Anoop Menon) (
Reuters
4 days ago
- Business
- Reuters
Investment flows in 2023 into developing countries at lowest since 2005, World Bank says
WASHINGTON, June 16 (Reuters) - Foreign direct investment flows into developing economies dropped to $435 billion in 2023, the lowest since 2005, with just $336 billion flowing into advanced economies, the lowest since 1996, the World Bank reported on Monday. It said growing investment and trade barriers, fragmentation and macroeconomic and geopolitical risks were depressing the outlook for FDI flows into developing countries, posing a threat to development efforts. "The sharp drop in FDI to developing economies should sound alarm bells,' Ayhan Kose, the World Bank's deputy chief economist, said in a statement released with the report. 'Reversing this slowdown is not just an economic imperative — it's essential for job creation, sustained growth, and achieving broader development goals." The report noted that global and national recessions were associated with a significant deterioration in FDI, with FDI starting to weaken before a recession hit. It said the decline in foreign investment had left "vast infrastructure gaps unmet" in developing countries, while eroding efforts to end global poverty and address urgent climate change needs. Kose said bold domestic reforms were needed to improve the business climate and expand global cooperation, which could spur increased rates of cross-border investment. The report, based on data from 2023, the latest available, said developing economies should ease restrictions that have built up in recent years, promote trade integration and encourage more people to participate in the formal economy. It urged countries to work together to ensure FDI flows went to developing economies with the largest investment needs. The bank released the report a week after downgrading its 2025 global economic forecast by four-tenths of a percentage point to 2.3%, warning that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies. World Bank Chief Economist Indermit Gill said in the statement the dwindling FDI, a key driver of economic growth, is the direct result of public policy that had seen a proliferation of trade and investment restrictions. "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," he said. FDI has averaged almost $2 trillion per year globally during the past decade, the bank said, adding that data suggested that a 10% increase in FDI inflows could boost GDP in an average developing economy by 0.3% after three years. The impact could be much larger - 0.8% - in countries with stronger institutions, lower informality and greater trade openness. As a share of their gross domestic product, FDI inflows to developing economies in 2023 were just 2.3%, about half the number during the peak year of 2008. FDI flows to emerging markets and developing economies grew rapidly during the 2000s, peaking at nearly 5% of gross domestic product in the typical economy in 2008, but they have declined since then, the report said. Trade growth also weakened significantly from 2020 to 2024, dropping to its slowest pace since 2000, while economic uncertainty spiked to the highest since the turn of the century, the bank said. The three largest developing countries - China, India and Brazil - jointly received almost half of total FDI inflows during the 2012-2024 time period. Advanced economies accounted for nearly 90% of total FDI in developing economies over the past decade, with about half of that coming from the European Union and the United States, the bank said.
