Why it’s time to reignite global investment flows

There has been a significant decline in rates
There has been a significant decline in rates of return on FDI. FILE PHOTO | NMG 

International investment flows have been weak for a decade. Last year, global foreign direct investment fell again, by 13 percent, the third consecutive decline. While developed countries have seen the largest drops in FDI, flows to developing countries have also stagnated. Only developing Asia is still showing moderate growth.

The stagnating FDI trend of the past decade can be ascribed to a range of factors.

First, the nature of FDI flows is changing. The adoption of digital technologies in global supply chains is causing a shift towards intangibles and increasingly asset-light forms of international production, which is also visible in a slowdown in global value chains. This has important implications for developing countries, which rely on investment in physical productive assets and on participation in global value chains for their development.

Second, there has been a significant decline in rates of return on FDI. The global rate of return on inward FDI dropped below seven percent in 2017, a decrease of almost two points compared to a decade ago.

Third, the international trade and investment policy climate has become generally less favourable. At the international level, the investment policy regime is in flux. It is made up of more than 3,000 investment agreements, with many gaps, overlaps and inconsistencies. At the national level, investment policies are no longer universally moving in the direction of greater openness. Restrictions and regulation of investment are on the rise.


This troubling global investment picture is a long-term concern for policymakers worldwide. At the United Nations, we recognise the gravity of this issue as investment is central for sustainable development and inclusive growth. The UN Conference on Trade and Development estimates the investment gap to achieve the Sustainable Development Goals at $2.5 trillion per year in developing countries alone.

We need to mobilise more investment and channel it to where it can contribute most to sustainable development. UNCTAD plays a central role, through its policy frameworks, intergovernmental consensus building and technical assistance, which work as a point of reference and a common structure for debate and cooperation on national and international policies to channel investment to the SDGs.

Major challenges remain, however, both at the international and national levels. In the international policy environment, IIA reform now needs to tackle the vast numbers of older treaties dating from before the reform process took hold.

The stock of old-generation treaties is 10 times larger than the number of modern, reform-oriented treaties. In national policy environments, greater efforts need to be made to channel investment into SDG sectors and contribute more to sustainable development.

The G7 summit provides an opportunity for global leaders to renew their commitment to a conducive global policy environment for investment in sustainable development.

To achieve prosperity goals, continued access to investment in productive capacity is needed to help developing countries, especially the least-developed countries, climb the development ladder.