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Foreign investments weighed down by rising interest rates in 2023

Foreign direct investments (FDI) in the world increased slightly in 2023 but remain low compared to their 2021 level.

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Foreign investments weighed down by rising interest rates in 2023

Foreign direct investments (FDI) in the world increased slightly in 2023 but remain low compared to their 2021 level. In total worldwide, they reached 1,370 billion dollars (1,260 billion euros), an increase of 3 % over one year, reports the United Nations Conference on Trade and Development (UNCTAD).

The institution explains that economic uncertainty and rising interest rates weighed on global investments, which nevertheless managed to defy fears of a recession. In the European Union, the entry of foreign investments increased by 18%, but only due to significant fluctuations in the Netherlands and Luxembourg. In 2022, the Grand Duchy saw its international investments fall by $340 billion before rising sharply in 2023, like Amsterdam which had a record year in 2023 after a negative flow of $16 billion. one year earlier. If we exclude these two economies, flows to the rest of the European Union decreased by 23%, with declines in several large countries such as Italy (-53%) or France (-46%).

More generally, foreign investments in most developed economies also declined, with a decline of 3% in the United States - the world's leading investment destination -, in particular due to a drop in mergers and acquisitions operations. Developing countries are also bearing the brunt of this negative trend with a 9% decrease in investments. The amounts fell by 1% in Africa, by 6% for China, by 22% for Brazil, or by 47% for India, even if the number of new projects was maintained there, allowing the country to Narendra Modi to remain in the top 5 global destinations for business creation. Only Central America reversed the trend, with a good performance for Mexico (21%), due to the acceleration of its trade with the United States.

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International project financing and mergers and acquisitions suffered the most from rising financing costs in 2023, explains UNCTAD, with 21% and 16% fewer transactions respectively. Announcements of new projects also decreased by 6%, but increased by 6% in value, driven by the manufacturing industry, “which constitutes a first sign of recovery after a long-term downward trend,” notes the United Nations institution.

In developed regions, “announcements of foreign investment projects have declined across the board.” The value of mergers and acquisitions was $280 billion lower in 2023 than in 2022, which directly weighed on international investment flows. In industry, trends show that the number of projects in high-intensity sectors in the global value chain increased by 16%, particularly in automotive, textiles and electronics. The number of new projects announced in the semiconductor sector fell by 10% (39% in value), after the strong growth recorded in 2022. The number of announcements of new projects and international financing operations of projects in the infrastructure sector decreased by 4% overall, largely due to lower project financing in the renewable energy sector. The latter fell by 17%, the first drop in the number of new projects since the Paris Agreement in 2015.

Looking ahead, “a slight increase in FDI flows in 2024 seems possible,” notes UNCTAD, due to lenient projections of inflation figures and prospects for lower financing costs. However, significant risks persist, such as “geopolitical tensions as well as high debt levels in many countries”.

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