FDI to the most vulnerable economies declined in 2016, with possible modest recovery in 2017

24 May 2017

On the occasion of the High-Level Forum on Finance for Development this week in New York, UNCTAD released the latest issue of its Global Investment Trend Monitor.

The key finding: FDI to the vulnerable economies – least developed countries (LDCs), landlocked developing countries (LLDCs) and small island developing States (SIDS) – all declined in 2016, with possible modest recovery in 2017.

  • Foreign direct investment (FDI) flows to structurally weak, vulnerable and small economies declined in 2016, although some groups were less affected than others. Their share in the world total shrank from 3.6 per cent in 2015 to 3.3 per cent.

  • After a high of $44 billion in 2015, flows to the 48 least developed countries (LDCs) retreated by 13 per cent to $38 billion. FDI to commodity-rich LDCs in Africa, notably Angola, Mozambique and Zambia, continued to decline, and flows to Asian LDCs slowed after a record year in 2015.

  • FDI flows to the 32 landlocked developing countries (LLDCs) slipped by 2 per cent to $24 billion. LLDCs remain marginal in the global foreign direct investment scene, accounting for less than 2 per cent of the world’s inflows.

  • The already fragile FDI flows to small island developing States (SIDS) fell further in 2016, representing merely 0.2 per cent of global flows.

  • FDI has become the most important component of development finance for LLDCs and SIDS, while official development assistance (ODA) tends to dominate external financial flows to LDCs, including FDI.

  • Investors from developing economies, led by China, continue to actively expand into LDCs and LLDCs. In fact, China’s outward FDI became three times as much as the second largest investing economy. Developing economies accounted for seven of the top 10 investors in SIDS.

  • In 2017, FDI flows to LDCs are expected to recover. Investments related to oil and gas will continue to drive overall FDI inflows, although the group has the potential to attract more investment in manufacturing and services. FDI prospects in LLDCs warrant cautious optimism. A recovery hinges on the evolution of both commodity prices and political issues. The prospects for attracting more FDI to SIDS remain challenging.

An in-depth analysis of FDI trends will feature in the forthcoming World Investment Report 2017, to be published on 7 June 2017.