Greenfield announcements on foreign direct investment (FDI) in the UAE rose to the second highest in the world after the US, a report showed on Wednesday.
The UAE’s FDI greenfield announcements rose by 28 per cent, the United Nations Conference on Trade and Development (Unctad) Investment Trends Monitor for January showed.
Foreign Direct Investment (FDI) flow into the UAE recorded a 10 per cent growth to $22.73 billion in 2022– a record high for the country – compared to $20.66 billion in 2021.
In West Asia, FDI remained stable, with a growth of two per cent. Greenfield numbers also jumped in Saudi Arabia, by 63 per cent, the report showed.
Global FDI flows in 2023, at an estimated $1.37 trillion, showed a marginal increase of 3 per cent) over 2022, defying expectations as recession fears early in the year receded and financial markets performed well.
“However, economic uncertainty and higher interest rates did affect global investment. The headline increase was due largely to higher values in a few European conduit economies; excluding these conduits, global FDI flows were 18 per cent lower,” the report said.
In developed countries, FDI in the European Union jumped from negative $150 billion in 2022 to positive $141 billion because of large swings in Luxembourg and the Netherlands. Excluding those two countries, inflows to the rest of the EU were 23 per cent down, with declines in several large recipients. Inflows in other developed countries also stagnated, with zero growth in North America and declines elsewhere.
FDI flows to developing countries fell by 9 per cent, to $841 billion, with declining or stagnating flows in most regions. FDI decreased by 12 per cent in developing Asia and by 1 per cent in Africa. It was stable in Latin America and the Caribbean as Central America bucked the trend.
International investment project announcements, including greenfield (mainly industry), project finance (mainly infrastructure) and cross-border merger and acquisitions (M&As), were mostly in negative territory. International project finance and M&As suffered the most from higher financing costs in 2023, with 21 per cent and 16 per cent fewer deals, respectively. Greenfield project announcements were also 6 per cent lower in number. However, they were 6 per cent up in value and showed higher numbers in manufacturing in an initial sign of recovery following a long-term declining trend.
In developed regions, international investment project announcements were down across the board. M&A values were $280 billion lower than in 2022, directly depressing FDI flows. Project finance deals were $157 billion lower. “Lower values of greenfield project announcements will affect 2024 FDI flows,” the report.
In the United States, the largest FDI recipient, FDI inflows in 2023 were down by 3 per cent, greenfield project numbers by 2 per cent and project finance deals by 5 per cent. China reported a rare decline in FDI inflows by 6 per cent but showed growth in new greenfield project announcements by 8 per cent.
The Association of South East Asian Nations (Asean), normally an engine of FDI growth, reported a 16 per cent decline in FDI. However, the attractiveness of the region for manufacturing investment was underlined by a 37 per cent jump in greenfield project announcements, with strong growth in Viet Nam, Thailand, Indonesia, Malaysia, the Philippines, and Cambodia.
India reported a drop in FDI inflows by 47 per cent but stable numbers of new project announcements, kept it in the top five of global greenfield project destinations.
Trends by industry in 2023 show project numbers rose in global value chain (GVC) intensive sectors by 16 per cent, especially in automotives, textiles, machinery, and electronics. The number of newly announced greenfield projects in semiconductors fell by 10 per cent (39 per cent in value) after the strong growth in 2022. The number of greenfield project announcements and international project finance deals in infrastructure industries (including transport, power, water, telecommunications) fell by 4 per cent overall, largely driven by lower project finance in renewable energy.
New international project finance deals in the renewable energy sector fell by 17 per cent in number and 10 per cent in value, only marginally less than the overall project finance decline. The decline in the number of new projects was the first since the Paris Agreement in 2015.
Looking ahead, Unctad expects that a modest increase in FDI flows in 2024 appears possible, as projections for inflation and borrowing costs in major markets indicate a stabilisation of financing conditions for international investment deals. “However, significant risks persist, including geopolitical risks, high debt levels accumulated in many countries, and concerns about further global economic fracturing,” the report said.