Developing nations need bold FDI reforms: World Bank report

The World Bank has urged developing nations to ease foreign direct investment (FDI) restrictions and strengthen global cooperation, as FDI inflows fell to their lowest level since 2005 amid rising barriers and economic uncertainty.

While India remained among the top recipients with US$ 28.1 billion in 2023, the report highlights that FDI remains heavily concentrated in a few large economies, leaving the poorest nations behind.

Developing nations must ease restrictions on foreign direct investment (FDI), amplify its economic benefits, and strengthen global cooperation to accelerate investment inflows, the World Bank said in its latest report.

India attracted US$ 28.1 billion in FDI in 2023, placing it among the top recipients among emerging market and developing economies (EMDEs), as per the World Bank. Alongside China and Brazil, India has consistently remained a key magnet for foreign capital. These three economies together accounted for nearly half of all FDI inflows to EMDEs during the period 2012–2023, with India and Brazil each accounting for 6% and China leading with 10%. In contrast, low-income countries received only 2% of total inflows during this period, highlighting the uneven distribution of global investment.

The World Bank’s flagship report, Foreign Direct Investment in Retreat: Policies to Turn the Tide, underscores a troubling trend—FDI inflows into developing economies fell to US$ 435 billion in 2023, the lowest level since 2005. High-income economies also witnessed a similar downturn, with inflows falling to US$ 336 billion—the weakest level since 1996. The report identifies rising trade and investment barriers, policy uncertainty, and a growing inward-looking stance among major economies as key factors driving this slowdown.

Indermit Gill, the World Bank Group’s chief economist and senior vice president, linked this dramatic fall in FDI to policy decisions taken by governments globally. “It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs. Private investment will have to power growth, and FDI happens to be one of the most productive forms of private investment,” he said.

M Ayhan Kose, the World Bank Group’s deputy chief economist, reinforced this view, stating: “Reversing this slowdown is not just an economic imperative—it’s essential for job creation, sustained growth and achieving broader development goals.“

The report further highlights the geographical concentration of FDI flows, noting that nearly two-thirds of all investment into EMDEs over the last decade has been absorbed by just ten countries. This concentration, while benefiting large markets like India and China, has left the poorest nations behind, limiting their access to essential capital for development and infrastructure.

To counter this trend, the World Bank advocates a comprehensive strategy centered on three pillars: reducing FDI restrictions, maximizing domestic spillovers through institutional reforms and skill development, and fostering greater international cooperation through transparent investment frameworks and trade agreements.