This article was automatically translated from HIBAPRESS, the Arabic version:
Hibapress
The foreign direct investment flows (IDE) to developing economies, an essential engine of economic growth and improving living standards, have dropped to their lowest level since 2005, in a context of multiplication of trade and investment barriers, according to a new study by the World Bank.
These obstacles are an important threat to global efforts to mobilize development funding, added the international financial institution in a statement published on Monday.
In 2023, the latest year for which data is available, the development savings received only $ 435 billion IDE, the lowest level since 2005.
This decrease coincides with a global trend in the slowdown in FDI flows towards advanced economies: high income savings received only $ 336 billion in 2023, their lowest level since 1996. As a percentage of their GDP, FDI entries to developing economies in 2023 were only 2.3%, or about half of the record level of 2008.
“What we observe is the result of public policies,” said Indermit Gill, chief economist and main vice-president of the World Bank group.
According to the World Bank’s study, it is no coincidence that IDE reach new floors while public debt reaches heights. Private investment will now have to fuel economic growth, and FDIs are one of the most productive forms of private investment. However, in recent years, governments have worked to erect barriers to investment and trade, when they should deliberately eliminate them.
From June 30 to July 3, representatives of governments, international institutions, civil society and private sector organizations will meet in Seville, Spain, to discuss the mobilization of the funding necessary for the achievement of the main global and national development objectives.
The new analysis of the World Bank highlights the policies necessary to achieve these objectives, while economic growth has slowed down, that public debt has reached record levels and that foreign aid budgets have decreased.
“While the international community is preparing for the conference on development financing, the sharp drop in FDI to developing economies should sound the alarm,” said Ayhan Kose, deputy chief economist of the World Bank group and director of the Perspective Group.
In 2023, IDEs represented about half of the external financing flows received by development economies. Under favorable conditions, they constitute a powerful stimulating for economic growth: data analysis of 74 development economies between 1995 and 2019 suggests that an increase of 10% of FDI flows generates an increase of 0.3% of real GDP after three years.
The impact is almost three times larger – up to 0.8% – in countries with more solid institutions, better human capital, greater opening to trade and low informality. Likewise, the effect of the increase in FDI is much lower in countries that do not present these characteristics.
