The leading body of the United Nations focused on trade and development, UNCTAD, is warning that international investment in 2025 has turned negative due to changes in global trade policy including tariff uncertainty.
While there had been modest growth in global investment at the start of the year, trade tensions have led to downward revisions in most indicators of foreign direct investment (FDI), according to the United Nations Conference on Trade and Development’s World Investment Report 2025, released on Thursday. This includes gross domestic product, capital formation, exports of goods and services, foreign exchange, financial market volatility, and investor sentiment.
“Taking all of these together, they almost all have been revised in the direction of higher risk, lower growth, lower investment, and so forth, since the beginning of this year,” said Richard Bolwijn, one of the authors of the report and head of the Investment Research Branch Division on Investment and Enterprise for UNCTAD. “If we take the projections by the IMF, the World Bank, and other institutions that provide us with the raw data for these indicators, they have all worsened since January. Moderate growth expectations we might have had early in the year have now all disappeared,” he said.
Among the reversals in growth was a two-year positive trend in manufacturing investments fueled by efforts among manufacturers to diversify their supply chains beyond China, which began during the pandemic.
“Companies were continuing to look for new locations for production, but now with the tariffs, they are all sitting on their hands,” said Bolwijn. The data for the first quarter of this year shows that both the M&A market and greenfield announcements (new project constructions) are at record lows. “Basically, the M&A market is back to global financial crisis levels,” he said.
Bolwijn said even if the situation improves and clarity is provided on tariffs, it will be hard to recover from the shock of the first six months of the year.
Globally, he said, between $100 and $200 billion of value in projects is at risk. “This is not all going to disappear overnight, but projects will be delayed which will cause a gap permanently going forward,” he said.
“While tariffs have led to some investment project announcements aimed at restructuring supply chains in manufacturing sectors, their main effect has been a dramatic increase in investor uncertainty,” the report stated. “Early data for the first quarter of 2025 show record-low activity in deals and projects.”
Cross-border mergers and acquisitions remained below the long-term average, “signalling a structural shift toward domestic and nearshore investment strategies amid rising policy risks, regulatory scrutiny and global uncertainty,” the report added.
The report showed that global foreign direct investment contracted for the second consecutive year. International project finance, which makes up the highest share of FDI in the least developed countries, continued its slump in 2024. Infrastructure investment makes up a large part of this investment. According to the report, the value of IPF was 26 percent lower in 2024, extending a sharp decline from 2023.
Uncertainty over exchange and interest rates was the reason cited behind the impact in financing conditions, with least developed countries the most in need of these funds. UNCTAD warned these countries would be most affected by the current investment downturn.
Overall, FDI into developing countries was stable in 2024, at $867 billion, but the spread between the winners and losers was wide, according to the report.
Africa’s foreign direct investment recorded its highest level ever, with a 75% increase to $97 billion. The lion’s share of that investment came from a single international project finance deal in Egypt by a sovereign investment fund in the United Arab Emirates. Taking that investment out, FDI flows to Africa were still up 12% ($64 billion.) Record FDI flows increased to developing Asia (ASEAN), up 10%, to $225 billion.
Foreign direct investment in China, however, continued to slump.
“Over the past 15 years or so, we have always reported a gradual increase in its foreign direct investment [China] but over the past two years, we’ve seen two subsequent years of decline. Last year was down 29%,” said Bolwijn. “If we look now at the comparison between the peak two years ago, it’s like 40% down,” he added.
Bolwijn said it is not necessarily seeing companies pull out of China in terms of production capacity, but the tariffs are affecting their investment decisions. “So where international companies are looking to expand or create new manufacturing facilities, they now have to consider that there is a tariff and that from a trade cost perspective, they will look at locations that are most advantageous,” he explained.
FDI in South America saw an 18% decrease. India saw a modest 2% decrease. Latin America and the Caribbean saw a decrease of 12%, largely due to lower energy prices in 2024. Brazil, the region’s largest FDI recipient, saw a decrease of 8%.
“The pullback in FDI affects all developing countries and the relative opportunity they have to either enter into or expand participation in the global value chains and certainly in manufacturing sectors,” Bolwijn said. “India relies on foreign direct investment to expand its manufacturing, training and production capacity.”
Structurally weak and vulnerable economies saw a marginal increase in FDI. Least developed countries saw an increase of 9% ($37 billion), or 2.4% of global FDI flows. Landlocked developing countries saw a 10% decrease, while small island developing states saw an increase of 11%.
UNCTAD wrote the “most alarming” deterioration in FDI was in sectors aligned with the sustainable development goals. Investment in energy and gas supply fell by 28%, while project finance in renewable energy declined by 16%.
“This trend comes at a time when the world can least afford to fall short. Reversing this negative trend in goals investment will demand not only more capital – both public and private – but also deeper alignment of investment flows with long-term sustainability goals,” the report stated.
Bowlijn said there is huge growth in semiconductor projects, including in the U.S. and India. Foreign direct investment in digital infrastructure is also increasing. “Digital economy investment is the fastest-growing segment around the world, including developing countries,” said Bowlijn. “This includes data centers, which have seen big growth,” he added.
But while digital investment is the fastest-growing segment in FDI, these investments are asset-light. “So it may bring us less value in terms of FDI on the balance of payment, but it might bring us more projects and good development opportunities for developing countries,” Bowlijn said.
