FDIs in emerging markets, developing economies fall to lowest levels since 2005

As per chapter three of the Global Economic Prospects report published on Monday, the WB noted that while FDI surged in the 2000s, increasing fivefold and peaking at nearly five percent of GDP in 2008 for the typical EMDE, inflows have since fallen to around two percent of GDP in recent years, the lowest level since 2005.

In 2023, EMDEs collectively received $435 billion in FDI, marking a significant decline.

The downtrend has been widespread: about 60 percent of EMDEs and four out of six EMDE regions recorded lower FDI-to-GDP ratios between 2012 and 2023 compared to 2000 and 2011.

Forward-looking indicators are also pessimistic, with early 2024 project announcements pointing to a 25 percent year-on-year decline in greenfield FDI, the primary mode of FDI into EMDEs.

During the first half of the current FY2024/2025 (July-December 2024), Egypt witnessed a notable development in FDI inflows, which recorded a net inflow of $6 billion, according to the latest data published by the Central Bank of Egypt (CBE).

This came despite an overall balance of payments (BoP) deficit of $502.6 million, driven by a widening current account deficit of $11.1 billion, primarily due to a 47.4 percent surge in the trade deficit and a 21.2 percent drop in the services surplus.

Sectoral, geographical composition shift
 

The report also indicated that the nature and destination of FDI in EMDEs have changed.

Since the early 2000s, the share of FDI going into services has significantly increased, while manufacturing has declined.

From 2019 to 2023, nearly 65 percent of FDI inflows into EMDEs went into the services sector, up from 45 percent in the early 2000s, mirroring patterns in advanced economies.

Meanwhile, the manufacturing share dropped to below 30 percent.

Additionally, FDI has become more concentrated in a few large economies. Between 2012 and 2023, China, India, and Brazil accounted for nearly half of all FDI inflows into EMDEs.

China alone received about one-third, while Brazil and India attracted 10 percent and six percent, respectively, together about 10 percentage points more than during 2000-2011.