Global foreign direct investment (FDI) flows have passed a critical juncture and are now on a downward trajectory, as ongoing uncertainty, inflation and the risk of recession dampen investor sentiment.

James Zhan, Unctad’s director of investment and enterprise, says that the second quarter of 2022 was a “turning point” whereby FDI across greenfield projects, cross-border mergers and acquisitions (M&A) and project finance globally is now falling. He expects the decline to continue into 2023.


In the second quarter of 2022, global FDI flows reached roughly $357bn, down 31% from the first quarter, according to Unctad’s quarterly trend monitor report. 

It is happening 

“In the World Investment Report we released in June, we said that there will be a downward trajectory. Now, we’re simply saying that it is happening,” Mr Zhan tells fDi, having previously said that the prospects for global FDI were “gloomy” amid the crises in fuel, food and finance.

“The outlook for global FDI in 2022 remains bleak due to the multiple ongoing geopolitical and economic crises. Tightening financial conditions and heightened investor uncertainty are visible in the declining monthly trends in new project announcements,” the report says.

Overall flows to developed economies were 22% lower in the second quarter of 2022 compared to the average quarter of 2021. Meanwhile, FDI flows to developing economies increased by 6% to $220bn, driven mostly by continued growth in several large emerging economies, Unctad says.

Mr Zhan nonetheless expects FDI flows into developing and developed countries alike to continue falling in the short-term.


“It seems to me that developing countries over the course of the rest of 2022 will suffer from the decline in FDI,” he says, adding that a large number will be “very much impacted by the combined crises of high debt, interest rate hikes of major economies, high energy prices and food security”.

Countries in the Association of Southeast Asian Nations reported lower inflows in the second quarter of 2022, with the exception of Malaysia and Vietnam, according to the quarterly report. The biggest declines in new investment project announcements were registered in Latin America and in Central Asia. 

The report also says that China reported a continued upward trend, with 18% higher inflows in the second quarter, compared to last year, and strong investment in high-tech industries. Mr Zhan confirmed that this figure comes from China’s Ministry of Commerce, but declined to comment further.

FDI decline across the board

With the Ukraine war and the major Western governments’ push for reshoring, Mr Zhan also says that FDI into OECD countries will not fare much better.

Inflows to developed economies were 22% lower in the second quarter of 2022 compared to the average of 2021, at an estimated $137bn, the report says. Flows to EU countries were up 7%, while FDI elsewhere in Europe were down 80% and FDI into North America dropped by 22%.

Cross-border M&A, which was the driving force behind the FDI recovery initially in 2020 and 2021, he says, “will only pick up again once the next economic recovery takes place”.

At the same time, the increased call for ambitious capital-intensive projects in sectors such as energy has meant that there has been a significant amount of mega projects, or investments involving at least $1bn of capital expenditure. 

This year, fDi Markets has recorded the highest number of mega projects over the first half of the year since 2008 — and therefore the second-highest first half of the year on record. 

Overall greenfield FDI projects for the first half of 2022 were up by 2.7% on the same period last year, according to fDi Markets. In the first quarter of the year, projects were down by about 13% on the previous year.

Mr Zhan says that “FDI can still be part of the solution” as there is potential for investments in the energy sector, particularly in renewable energy and energy efficiency technologies, but also in the extractive sector.

Faced with an ever-challenging macroeconomic environment where national governments are focused on national security and reshoring, Mr Zhan says that “FDI can help to build supply capacities in areas like infrastructure, health and energy security, and it’s important for countries to focus on investment promotion in these areas”.

FDI flows into extractive industries in the second quarter of 2022 went up by 531%, compared to the average quarter in 2021, while flows into electricity and gas supply were also up 152%, according to Unctad.