Global FDI Declines for Second Year in a Row

In 2025, global FDI saw an 11% decline due to rising geopolitical tensions and trade restrictions. Yet, the digital economy continued to grow, with digital sector investments increasing by over 10%. This divergence highlights the shifting focus from traditional investment flows to tech-driven development, concentrated in a handful of leading nations.

The latest World Investment Report 2025, released 19 June 2025 by UNCTAD, reveals global foreign direct investment (FDI) fell by 11% in 2024, marking the second consecutive year of decline . While headline numbers show global FDI  and digital economy growth 2025 at approximately US$1.5 trillion, this masks a surge in non‑productive financial “conduit flows” through European hubs—including Luxembourg and the Netherlands—rather than real economic investment.

Reasons Behind the Decline

Experts attribute this fall to rising geopolitical tensions, escalating trade tariffs, and stricter investment screening in developed countries. UNCTAD Secretary-General Rebeca Grynspan described these trends as a pattern affecting economic stability: “Growing geopolitical tensions … shift priorities towards short‑term risk avoidance and national interest”

Notably, Europe experienced the sharpest drop—a 58% plunge in FDI inflows in 2024In contrast, North America, especially the U.S., saw a 23% rise.

🌱 Developing Countries Left Behind

FDI into developing economies has collapsed to its lowest level since 2005, with just US$435 billion in 2023, per World Bank data . The distribution of global foreign investment remains uneven: a tiny group of ten countries receive 80% of digital economy FDI, leaving many low-income nations behind.

World Bank economists warn that increased trade and investment barriers are worsening the situation, noting that half of policy changes in developing countries in 2025 have been restrictive measures—the highest since 2010.

💻 Digital Economy Surges Despite Overall Weakness

Amid the FDI slump, the digital economy is gaining momentum. UNCTAD reports show that investments in digital sectors grew 10–12% annually, outpacing global GDP growth . Another source highlights a 14% jump in digital FDI in 2024, fueled by ICT manufacturing, digital services, and semiconductors.

Still, this growth is highly concentrated: 10 countries attracted 80% of digital projects, leaving many developing economies out of this digital boom.

📌 Challenges Ahead & Policy Roadmap

UNCTAD outlines several key challenges that need addressing:

  • Infrastructure gaps: Many developing nations lack robust connectivity and data‑center capacity.

  • Skills shortages: Digital education and training are uneven across regions.

  • Regulatory uncertainty: Weak data governance, unclear intellectual property rules, and fragmented policy frameworks make it harder to attract investment.

To close these gaps, UNCTAD recommends:

  • Coordinated policy toolkits for digital investment.

  • Stronger public–private partnerships and blended finance mechanisms.

  • Integrated digital strategies aligned with broader development goals, including SDGs and the Global Digital Compact.

🔮 Outlook for 2025

The 2025 FDI forecast remains negative, with early-year data signaling record-low deal activity, especially in project-based investment. Unless global authorities ease trade barriers and align digital strategies with investment policy, global FDI—particularly in infrastructure, energy, and technology—may continue to weaken.

That said, the digital economy shows promise. Led by a few nations, its strong performance could inspire broader digital transformation—if governments adopt smart, inclusive investment policies.

✳️ Final Thought

Global FDI is facing stormy weather—down for the second straight year. Yet, the digital sector is a bright spot, growing faster than the rest of the economy. The key question: Will the digital boom be shared widely, especially among the developing world? UNCTAD says the answer hinges on governments adopting bold, integrated policies—and turning today’s volatility into tomorrow’s growth opportunity.

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