In 2023, global foreign direct investment (FDI) reached an unprecedented $41 trillion, marking a $1.75 trillion increase, or 4.4%, from the previous year. This growth, reported by the International Monetary Fund’s (IMF) latest Coordinated Direct Investment Survey (CDIS), highlights a resurgence in cross-border investments following a period of decline.
Regional Contributions to FDI Growth
The expansion of FDI was evident across multiple regions, with Central and South Asia, Europe, and North and Central America making significant contributions. Investments between advanced economies grew by $880 billion, or 3.6%, while those from advanced economies to emerging market and developing economies (EMDEs) increased by $538 billion, or 7.6%.
Emerging economies such as India, Mexico, and Brazil experienced notable growth in inward direct investment positions, each rising by approximately $130 billion, or about 20%. This surge represents the largest increase for these nations since the CDIS began in 2009.
Africa’s FDI Landscape
In sub-Saharan Africa (SSA), intra-regional FDI has become increasingly prominent. Between 2020 and 2023, intra-regional investment accounted for an average of 21% of SSA’s total inward FDI stock, up from 14.7% in the previous decade. This shift indicates a growing trend of African firms investing within the continent.
However, this increase in intra-regional FDI coincides with a decline in investments from outside the continent. Inward FDI stock from external sources decreased from $423 billion in 2022 to $347 billion in 2023. This trend suggests that while regional integration is strengthening, Africa’s reliance on internal investments has grown due to reduced external interest.
Nigeria’s FDI Dynamics
Nigeria, as one of Africa’s largest economies, has faced challenges in attracting and retaining FDI. The country has witnessed divestments by several multinational corporations in recent years. For instance, oil and gas majors like Eni and Equinor, as well as pharmaceutical giant GSK, have sold their assets in Nigeria. These exits reflect broader concerns among foreign investors regarding the Nigerian business environment.
Despite these challenges, Nigeria’s economy continues to show resilience. The IMF projected a growth rate of about 3% for Nigeria in 2023, while the Nigerian government anticipated a more robust 3.8% growth rate.
This economic growth, coupled with ongoing reforms, may enhance Nigeria’s attractiveness to foreign investors in the future.
Sectoral Shifts in African FDI
The nature of FDI within Africa has also evolved. Intra-African greenfield investments have become more concentrated in sectors like information technology infrastructure and services. Between 2020 and 2023, IT infrastructure accounted for 48% of intra-regional FDI capital expenditure, while business services comprised 13.3%. In contrast, manufacturing and extraction activities received a smaller share of intra-African investments, highlighting a shift towards service-oriented sectors.
Global Implications
The record-high global FDI of $41 trillion underscores the resilience of international investment flows. Advanced economies continue to be significant sources and destinations for FDI, but the increasing contributions from emerging markets highlight a diversification of investment patterns.
For Africa, the rise in intra-regional investments signifies progress towards economic integration. However, the decline in external FDI inflows presents challenges that need to be addressed to sustain economic growth. Enhancing the business environment, ensuring political stability, and implementing investor-friendly policies are crucial steps for African nations to attract and retain both regional and global investments.
While global FDI has reached new heights, the distribution and sources of these investments are shifting. For regions like Africa, balancing intra-regional growth with strategies to attract external investments will be key to long-term economic prosperity.
