Global investment drought: FDI to developing economies hits 20-year low

The World Bank has reported that foreign direct investment (FDI) flows into developing economies plummeted to $435 billion in 2023, marking the lowest level since 2005.

This alarming decline, detailed in a recent press release, underscores a troubling trend for emerging markets that rely heavily on such investments to fuel economic growth, infrastructure development, and job creation.

As global trade and investment barriers rise, the implications for these nations are profound, raising concerns about their ability to meet critical development goals.

A steep decline in FDI: what the numbers reveal

According to the World Bank’s latest research, published on June 16, 2025, FDI into developing countries has not been this low in nearly two decades.

The $435 billion figure represents a significant drop from previous years, reflecting a broader retreat in global investment flows.

Meanwhile, advanced economies also saw a historic low, with only $336 billion in FDI inflows in 2023—the lowest since 1996.

These figures, reported by both Reuters and the World Bank’s official channels, highlight a synchronized downturn in investment across both developing and developed markets.

The World Bank attributes this decline to several factors, including rising trade barriers, geopolitical tensions, and increasing policy risks that deter investors.

Developing economies, often seen as higher-risk destinations, have borne the brunt of this cautious investment climate.

The report warns that this trend threatens to stall economic progress in regions already grappling with poverty, inequality, and infrastructure deficits.

Why FDI matters for emerging economies

Foreign direct investment is a cornerstone of economic development for many emerging markets.

It provides not only capital but also technology transfer, job opportunities, and access to international markets.

Countries in Africa, Latin America, and parts of Asia have historically depended on FDI to bridge funding gaps for large-scale projects such as roads, energy systems, and industrial hubs.

The current decline, as noted by the World Bank, has left “vast infrastructure gaps unmet,” exacerbating challenges in these regions.

For context, FDI inflows often account for a significant portion of gross domestic product (GDP) in developing nations.

A reduction to levels not seen since 2005 signals a potential rollback of economic gains made over the past two decades.

Key drivers behind the investment retreat

Several interconnected factors have contributed to the sharp drop in FDI flows.

First, the rise of protectionist policies and trade barriers has created uncertainty for multinational corporations looking to invest abroad.

Tariffs, export restrictions, and regulatory hurdles have made cross-border investments less attractive, especially in developing economies where political stability can already be a concern.

Second, geopolitical tensions have further dampened investor confidence.

Conflicts and strained international relations have led to a more fragmented global economy, with investors favoring safer, more predictable markets.

The World Bank’s report specifically notes that these tensions have diverted capital away from emerging economies, a trend also highlighted by Reuters in its analysis.

Lastly, domestic policy risks in many developing countries have played a role. Issues such as inconsistent regulations, corruption, and inadequate legal frameworks continue to deter long-term investments.

Regional disparities and the hardest-hit nations

The steep drop in foreign direct investment (FDI) hasn’t hit all developing regions equally.

While some countries have managed to hold onto a bigger piece of the shrinking investment pie, others have seen their FDI inflows nearly vanish.

India, for example, received $28.1 billion in FDI in 2023 and, along with China and Brazil, accounted for almost half of all FDI into emerging markets between 2012 and 2023.

India’s share alone stood at 6% during this period.

However, the poorest countries—often classified as least developed—have been left far behind.

In 2023, these nations received just 2% of total global FDI, highlighting a stark imbalance.

Disclaimer: Portions of this article were generated with the assistance of AI tools and reviewed by the Invezz editorial team for accuracy and adherence to our standards.

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