The past few years for foreign direct investment (FDI) flows have been volatile, as a hoped-for recovery after the Covid pandemic was thwarted by a confluence of crises and pressures ranging from economic to geopolitical.
Preliminary figures for 2024 reveal the recovery still has not fully manifested itself. At first glance, global FDI grew by 11% in 2024 to $1.4 trillion, according to UN Trade & Development (known as UNCTAD), marking a partial recovery from previous years of sluggish growth. However, this figure conceals significant disparities. When flows through European conduit economies — often intermediaries in global investment — are excluded, FDI actually fell by 8%.
While developed economies saw a 43% surge in FDI in 2024, largely due to activity in conduit economies, FDI to developing countries declined by 2%, marking a second consecutive annual drop.
According to Nan Li Collins, senior director in the Division on Investment and Enterprise at UNCTAD, key factors that are impacting FDI flows include macroeconomic trends, technological innovation, sectoral shifts, and geopolitical and trade risks. In addition, regional disparities and economic fragmentation, debt distress, regulatory shifts, and the growing influence of private equity and sovereign wealth investors are also having an impact. “Sovereign wealth funds and public pension funds, for example, have been increasingly active in emerging markets,” she says.
Despite ongoing risks, improved financing conditions and a resurgence in mergers and acquisitions are expected to drive moderate FDI growth in 2025, particularly in developed economies. However, the continuing restructuring of global supply chains may magnify regional disparities.
“The trajectory of global FDI in 2025 will be shaped by a complex interplay of economic, geopolitical and policy dynamics,” Collins says.
“While moderate global FDI growth is possible, significant regional disparities are likely. The United States and the European Union are poised for growth in global FDI flows. Developing regions that are close or well connected to major markets — such as ASEAN, West Asia, North Africa and parts of Central America — could see gains driven by global supply chain realignments,” she adds.
Andreas Dressler, managing director of Germany-based advisory firm FDI Center, agrees that ASEAN countries are likely winners of these realignments. “ASEAN will continue to attract more FDI based on market growth, regional integration and cost advantages.” This investment will become increasingly sophisticated, such as that involving semiconductor production, he notes.
Of the broader landscape, Dressler says there are a number of different directions FDI could go in 2025, with many unknowns about the investment environment of the U.S. — the largest destination and source market for FDI — due to the change in administration.
“The U.S. risks alienating foreign investors through its aggressive stance and policy uncertainty,” he says, pointing to the unclear fate of the incentives offered through the Biden-era Inflation Reduction Act and the tariff-heavy trade policies of President Donald Trump. “Some companies may feel compelled to invest in the U.S. to circumvent tariffs and meet domestic content requirements. Others will stay away to avoid the uncertainty.”
Meanwhile, Dressler expects China’s share out outbound FDI to increase. “Developing countries will increasingly focus on China and the Gulf region as sources for attracting FDI, avoiding the scrutiny and conditions attached with attracting Western investors,” he predicts.