The latest edition of UNCTAD's World Investment Report brought data from 2023 for foreign direct investments (FDI) in the world, which will be analyzed in this Letter IEDI. Thus, we updated the world ranking of the largest countries receiving and originating these investments and highlighted the performance of Brazil.

Global FDI flows totaled US$1.33 trillion in 2023, according to UNCTAD, implying a 2.2% decrease in relation to 2022. This figure, however, was positively influenced by FDI flows to a small number of European conduit economies, according to the report. These are countries of “transit” of investments that are ultimately destined for other economies.

Excluding this effect, global FDI flows contracted 10%, in a context of uncertainties about the performance of the world economy and the potential impact of ongoing fragmentation trends. Brazil followed the aggregate pace and registered -10.2%.

Two types of FDI drove the global drop: cross-border mergers and acquisitions (M&A), whose value (US$378 billion) fell by half from 2022 to 2023, and international project finance agreements (US$958 million), which registered -25%.

UNCTAD points out the factors that explain the reduction of these types of FDI: restrictive global financial conditions, investor uncertainty, volatility in financial markets and, in the case of M&A, stricter regulation.

On the other hand, greenfield projects— which involve the construction of new productive capacity —increased 5.4%, in value, in 2023 compared to 2022. The main bullish factor was the multiplication of announcements in the manufacturing sector, interrupting a decade of continued decline. It should be noted that in manufacturing M&A operations were practically stable (-0.7%) last year, not contributing to the general drop in this type of flow.

The advance of greenfield FDI was driven by developing economies, where investment announcements increased 20% compared to 2022. In developed economies there was a 8% drop. UNCTAD highlights four branches with greater expansion: energy and gas; electronic and electrical equipment; information and communication; extractive industries.

In total, however, developing economies inflows declined by 7% in 2023 to US$867 billion. Greenfield projects partially offset the fall. Developed economies, in turn, increased 9% if we consider investments received by European conduit economies, as previously noted. Without this effect, there was a 15% drop, associated with corporate financial reconfigurations due to moves to adopt a minimum global tax on large multinational companies.

In regional terms, there was a 8% decline for developing Asia (to US$621 million), but it remained the main recipient of FDI in the developing world and globally. Inflows to Africa fell 3% (to $53 billion) and Latin America performed best among developing regions.

FDI inflows to Latin American countries varied by only -1%, remaining practically stable compared to 2022 (at US$193 billion). M&A in the region decreased 26.7% (to US$11 billion), but greenfield projects involved a larger amount of resources, driven by large projects in Brazil and Chile, in critical commodities and minerals sectors.

For Brazil, FDI inflows reached US$65.9 billion in 2023, equivalent to 18.3% of the country's gross fixed capital formation (GFCF). This value, as mentioned above, was 10.2% lower than the amount for 2022, but was still above the average for the 5 years prior to the pandemic. The decline was due to the negative performance of project finance agreements, which more than canceled the increase in other types. Greenfield projects (US$36.2 billion) increased 69%.

Despite the drop, we improved our position in the global ranking of FDI inflows. In 2022 we occupied the 6th place and in 2023 we rose to 5th, surpassing France, whose inflows declined 81% last year. In the top positions there were the US (1st), despite a 6% drop (to US$311 billion) and China (2nd), with a 14% drop, followed by Singapore (3rd and +13.5%) and Hong Kong (4th and +2.7%).

It should be noted that we have a prominent position in the world when it comes to attracting external investments. Other countries in the region lagged far behind in the global ranking, such as Mexico, in 9th place, although it made great progress in relation to 2022 (12th) with stable inflows in the period, and Chile, in 20th place, also with progress in relation to the previous year (26th and a rise of 23.5% in inflows).

For 2024, the international context for FDI flows remains challenging, according to the UNCTAD report. In addition to the fact that current projections do not indicate an acceleration in global growth (2.6% in 2024 versus 2.7% in 2023), a set of factors is causing a reconfiguration of international production and a more cautious behavior of multinational companies in relation to cross-border investments, which tends to negatively affect FDI. Among these factors, UNCTAD mentions:

 • fracturing trends in the global economy;

 • trade and geopolitical tensions;

 • industrial policies that affect strategic sectors and

 • diversification initiatives for global value chains.

However, there are also elements that can mitigate the factors above. UNCTAD points out, for example, that the these companies' profits remained high in 2023, even if slightly lower than in the previous biennium. Therefore, it assesses that the reinvestment of profits, which is an important component of FDI, should remain robust in 2024.

Another favorable aspect highlighted in the report is the prospect of improving global financial conditions, which can stimulate international project finance agreements. M&A should also recover and the increase in announcements of new greenfield projects in 2023 should still positively affect FDI flows in 2024.

The full text is available in Portuguese.