Launch of the World Investment Report 2023
05 July 2023
Welcome to the launch of the 2023 edition of the World Investment Report and thank you for joining us.
As every year, UNCTAD through the World Investment Report 2023 provides the latest trends in global foreign direct investment, greenfield investment projects, and international project finance.
This report also includes a key review of investment needs at the midpoint of the 2030 Agenda for Sustainable Development.
Most importantly, the report addresses a defining challenge of our time with a clear call to action for investing in sustainable energy for all.
The report identifies international investment bottlenecks that risk holding back this transition and provides concrete policy recommendations.
But before looking at investment in sustainable energy, let me first turn to current global investment trends and prospects.
The prospects for international investment looked extremely gloomy last year, with rising inflation, fears of recession and turbulence in the financial markets causing investor uncertainty around the world, putting many investment plans on hold at the beginning of 2022.
However, In the end, international investment flows suffered but proved more resilient than expected.
While global FDI declined by 12 percent last year to 1.3 trillion dollars, the slowdown was limited. Investment flows to developing countries increased marginally (although mostly to some large emerging economies), and investors announced new projects in both industry and infrastructure.
Business as usual, however, is still bad news.
The major disparities in global investment patterns remained.
The growth of investment in developing countries is concentrated in a small number of large emerging economies.
Foreign direct investment flows to many smaller developing countries are stagnant, while flows to the least developed countries fell by 16 percent from an already low base.
Similarly, at the sectoral level, strong growth in some sectors – such as semiconductors in response to chip shortages – was accompanied by weak performance in other industries that are important for the build-up of productive capacity in developing countries, such as the food industry. FDI activity in agrifood systems, so important for future food security, is lower today than in 2015.
We see the same contrasts when we look at investment relevant for the Sustainable Development Goals (SDGs).
The good news is that international investment activity in SDG sectors in developing countries increased in 2022. But looking at the gains since 2015 when the SDGs were adopted, progress is still very modest.
And while some SDG-investment sectors – notably renewable energy – attract significant international investment, others – such as water and sanitation, agrifood systems or health and education – do less well.
Now let me turn to the key theme of the report: Investing in sustainable energy and give you some strong data.
Developing countries only attracted foreign direct investment in clean energy worth only $544 billion in 2022.
Developing countries face an investment gap of $2.2 trillion annually for the energy transition, out of a $4 trillion annual funding gap for the Sustainable Development Goals.
So we are making a strong call for massive investment in renewable energy so developing countries can make the energy transition they need.
Let me also underline that this is linked directly to the financial situation developing countries find themselves in due to the cascading shocks caused by climate change, COVID-19 and the economic shock that the war in Ukraine has sent to the global economic system.
Therefore, developing countries need urgent debt relief to have the fiscal space to make the necessary investments for a clean energy transition and to attract international private investment by lowering country risk ratings.
A major concern last year was that rising prices of energy and a push in many countries for greater energy security would reverse the trend away from investment in fossil fuels and towards renewable energy.
This has, so far, not happened to the extent we feared.
Investment numbers and values in extractive industries remained stable in 2022, while renewable energy projects reached a record high last year.
International investment in renewable energy has tripled since 2015.
But, as this report shows, investment has been heavily concentrated in a few economies in developing regions, it has barely outpaced overall FDI and GDP growth.
In the least developed countries, international investment in renewables has grown by only 1 per cent per year on average, while GDP has been growing seven times faster.
There are more than 30 developing countries that have not registered a single international investment in utility-sized renewable energy generation since the adoption of the Paris Agreement.
Furthermore, while investor interest in renewables is strong, other types of investment needed for the energy transition receive much less attention like investment in power grids, storage, and energy efficiency.
Looking at the key determinants of investment in the energy sector, the report presents a detailed analysis of the impact on the cost of capital of various degrees of participation in projects by different stakeholders. Importantly, the report shows that investment partnerships lower the cost of debt finance for developing countries.
Bringing in international sponsors as project owners leads to a lower cost of capital than in purely domestic projects.
Combining international, multilateral development banks and government shareholders can reduce the spread on borrowing costs for energy investment projects by up to 40 per cent, so lowering the cost of capital for energy investment makes it urgent to put in place the necessary institutional capacity and safeguards to ensure that partnerships work for the common interest.
The scale of the challenge is enormous, and so is the range of actions needed.
The growth of green finance in global capital markets, with sustainable bonds growing fivefold in five years, shows that the appetite among private investors to fund climate change action is there.
The task is now to channel those funds to where they are most needed to support the transition and to provide affordable access to electricity for all.
Through the World Investment Report we are proposing a Global Action Compact for Investment in Sustainable Energy for All.
The Compact contains a set of guiding principles that considers all three objectives of the energy transition – meeting climate goals, providing affordable energy for all, and ensuring energy security – and puts forward six action packages covering national and international investment policymaking, global, regional, and South–South partnerships and cooperation, financing mechanisms and tools, and sustainable finance markets.
The recommendations of this report will be the subject of discussions at UNCTAD’s World Investment Forum in October this year. Taking place ahead of COP28, in the same location, the WIF 2023 offers a platform for policymakers at the highest levels, and for the broadest possible constituency of investment-for-development stakeholders, to translate them into concrete action.
We invite all stakeholders to engage with this report and join us in shaping a sustainable energy future for all.
Thank you for your attention.