FOREIGN INVESTMENT NO LONGER ALIGNED WITH GDP GROWTH, GLOBAL CRISES FRACTURING FDI

The decline in manufacturing has severely impacted smaller economies, hindering their ability to participate in global production, upgrade production methods and adopt new technologies.

A significant shift has taken place in the global economy with the growth of foreign direct investment (FDI) and global value chains (GVCs) no longer aligned with GDP and trade growth and even amidst rising trade tensions, global GDP and trade, since 2010, have continued to expand at an annual average of 3.4 per cent and 4.2 per cent respectively. In stark contrast, FDI growth has stagnated near zero per cent in the midst of rising protectionism, growing geopolitical tensions and increased investor caution, says the latest UN Trade and Development (UNCTAD) report "Global economic fracturing and shifting investment patterns" launched on 23rd April.

The report examines the complex landscape of global FDI and sheds light on how over the past two decades, transformative shifts driven by technological advances, policy developments and sustainability demands have reshaped globalisation, compelling FDI patterns to adapt in three key aspects.

It emphasises the necessity of integrating sustainability and development into investment strategies and calls for innovative investment strategies to foster inclusive and sustainable economic growth. Here are some key findings.

Second, notes UNTAD, there is a widening gap in investment trends between manufacturing and services sectors with investments increasingly leaning towards services. From 2004 to 2023, the share of cross-border greenfield projects in the services sector grew from 66 per cent to 81 per cent and services-related investment within manufacturing industries nearly doubled to about 70 per cent, driven by technological advances. Simultaneously, FDI in manufacturing was stagnating for two decades before going down significantly, with a negative compound annual growth rate of -12 per cent in the three years after the outbreak of the Covid-19 pandemic.