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UAE attracts second-highest FDI inflow after US: UNCTAD

The UNCTAD report’s sectoral analysis for 2023 showed an uptick in project numbers in sectors that rely heavily on global value chains, including automotive, textiles, machinery and electronics

by Gulf Business

January 26, 2024

Global foreign direct investment grows 3% in 2023: UNCTAD

Image: Getty Images

Global foreign direct investment (FDI) grew by 3 per cent, finishing 2023 at an estimated $1.37tn, UNCTAD’s latest Global Investment Trends Monitor has revealed.

The report shares that the overall uptick was driven mainly by a few European “conduit” economies, which often act as intermediaries for FDI destined for other nations.

Strikingly, when these conduit economies are excluded, global FDI flows show a steep 18 per cent decline in 2023. The rest of the European Union recorded a steep 23 per cent decline, and the US, the world’s leading FDI recipient, saw a 3 per cent dip.

The UNCTAD report also underscores a worrying decline in international investment project announcements last year, especially in project finance and M&As, which declined 21 per cent and 16 per cent, respectively.

Meanwhile, greenfield project announcements dipped by 6 per cent in number but grew by 6 per cent in value, bolstered in part by manufacturing.

Looking ahead, the report says “a modest increase in FDI flows in 2024 appears possible”, citing stabilisation for inflation and borrowing costs in major markets. But it warns that significant risks persist, including geopolitical tensions, mounting debt in many countries and concerns about further global economic fragmentation.

UAE maintains its global attractiveness in attracting FDI flows

The UNCTAD reports saw a noticeable increase in new foreign investment projects in the UAE during the year 2023, explaining that the number of these projects increased by 28 per cent compared to 2022.

The report stated that the UAE recorded the second-highest increase in the number of new foreign investment projects around the world after the US, which came in first place.

The report, entitled“ Investment Trends Monitor” confirmed that the UAE has continued to maintain its global attractiveness in attracting foreign direct investment flows, despite the decline of these flows in many regions of the world.

Dr Thani bin Ahmed Al Zeyoudi, Minister of State for Foreign Trade, said the country is focused on improving the business environment to attract foreign direct investment, entrepreneurs, international talents, and creative individuals seeking an environment supportive of innovation and sustainable economic growth.

The UAE’s record foreign direct investment projects, as highlighted in the UNCTAD report, demonstrate the country’s growing stature as a global business hub, attracting creative ideas and investments from around the world.

Developing Asia’s FDI engine slows, shows UNCTAD report

The overall FDI landscape for developing countries in 2023 revealed a 9 per cent decline, amounting to $841 billion. Developing Asian countries bore the brunt with a 12 per cent decrease.

China reported an unusual 6 per cent drop in FDI inflows but showed an 8 per cent growth in new greenfield project announcements.

India, another regional giant, saw a 47 per cent drop in FDI inflows but remained among the top five global destinations for greenfield projects.

The Association of Southeast Asian countries (ASEAN), traditionally an engine of FDI growth, recorded a 16 per cent decline. Yet the region remained attractive for manufacturing investments with a remarkable 37% increase in greenfield project announcements in nations like Vietnam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia.

Conversely, FDI flows fell by a modest 1 per cent in Africa and held steady in Latin America and the Caribbean, thanks in part to increases in Central America and 21 per cent growth in Mexico, the region’s second-largest economy.

Industries linked to global value chains see project investments grow

The UNCTAD report’s sectoral analysis for 2023 showed an uptick in project numbers in sectors that rely heavily on global value chains, including automotive, textiles, machinery and electronics. Meanwhile, the semiconductors sector recorded a 10 per cent decline in the number of greenfield projects and a 39 per cent drop in their value, following robust growth in 2022.

Renewable energy faces the first decline since Paris Agreement

The report raised concerns about the renewable energy sector, which saw a 17 per cent decrease in new international project finance deals and a 10 per cent decline in their value.

This marked the first decline since the Paris Agreement in 2015.

Sustainable development investment

The number of international investment projects announced in developing countries in sectors relevant to the Sustainable Development Goals (SDGs) remained relatively stable in 2023. However, SDG-related international project finance deals showed a 27 per cent decline in numbers and a 40 pr cent drop in value.

On the other hand, greenfield projects aligned with SDGs recorded 12 per cent growth in number and a 6 per cent rise in value. The food and agriculture sector showed marginal growth, while most other sectors reported declines.