Geopolitical and macroeconomic uncertainties continue to mar the foreign direct investment (FDI) outlook for 2024. As always, though, there are many nuances to this global economic cycle. They make the outlook less gloomy than it may appear at first glance. Developing economies in particular can look ahead with a renewed sense of optimism.
Interest rates are expected to come down in the US and Europe as inflation recedes. Cheaper cost of capital will give multinational enterprises a better chance to divert resources from anaemic domestic markets — the IMF expects growth to average 1.4% in advanced economies — and chase business opportunities in faster-growing developing economies.
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More capital, combined with the buoyant commodity cycle, will put resource-rich regions in the spotlight.
“For most of Africa and the Middle East, it is still natural resources that will attract tens of billions of FDI in 2024, thanks to the three ‘geos’: geography, geology and geopolitics,” writes Charlie Robertson, head of macro-strategy at investment firm FIM Partners.
For most of Africa and the Middle East, it is still natural resources that will attract tens of billions of FDI in 2024.
Growth is expected to accelerate from 3.3% in 2023 to 4% in 2024 in Sub-Saharan Africa; and from 2% to 3.4% in the Middle East and Central Asia, according to IMF estimates.
China’s slowdown is hampering down the outlook for developing Asia, where the IMF expects growth to slow from 5.2% in 2023 to 4.8% in 2024. However, there might be a silver lining.
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“There is still underinvestment in many countries,” writes Lawrence Yeo, CEO of consultancy AsiaBIZ Strategy. “And while global FDI flows to Asia have been recovering to pre-pandemic levels, inflows are expected to slow in 2024."
“Indian poet Rabindranath Tagore’s famous quote that ‘light that emanates from the core of gloom is your glow’ aptly describes Asia’s FDI outlook, and particularly the Association of Southeast Asian Nations,” Mr Yeo writes.
Indian poet Rabindranath Tagore’s famous quote that ‘light that emanates from the core of gloom is your glow’ aptly describes Asia’s FDI outlook.
That light originates in stronger regional trade and investment flows, as well as the ongoing reorganisation of China-centric value chains. Chinese outward investment in particular has reawakened after the pandemic years, with 40% of it typically going to China’s Asian peers.
Cambodia, the Philippines and India already feature among the countries that are carrying the stronger FDI momentum into the new year, according to the FDI Standouts Watchlist 2024.
A long election year looms large in the US, and will culminate with the November 5 presidential election. Economic recovery in the US has defied odds and investment activity remained very buoyant as the likes of the Inflation Reduction Act and the Chips Act promise to inject trillions of dollars into the economy to stimulate investment.
However, the time for speculative projects may be close to an end as they hit bottlenecks and delays.
“Despite the headwinds, I believe 2024 will be another strong year for economic development projects,” argues Didi Caldwell, CEO of consultancy Global Location Strategies. “However, the mix of projects may be much different to years past. Projects with a strong business case and reliable funding will carry the day, while highly speculative projects heavily dependent on government subsidies will not make the cut. Communities with announced projects that meet the latter description need to plan now how they will pivot if the worst becomes a reality.”
Despite the headwinds, I believe 2024 will be another strong year for economic development projects.
The IMF expects the US to grow at 1.4% in 2024 (down from 2.1% in 2023), and at 1.6% in Canada (up from 1.3%). Growth in the Latin America and the Caribbean region is expected to be stable at 2.3%.
It will be a consequential year for politics in Europe too, with general elections in the UK and at the European Parliament. There is a feeling of limitless social and political fragmentation on the continent. But its economic policies have created a more cohesive trade and investment bloc, at least in the EU and its regional partners.
“With escalating US–China tensions, reshoring back to Europe is becoming a very real option,” writes Martin Kaspar, an FDI expert and head of business development at a German Mittelstand automotive company. “At the same time, the ‘grown-ups in the room’ in Germany seem to be putting an end to the Green party’s ideological overdrive, while Poland is stepping back from the nationalistic brink. Only the French continue to pursue their favourite past-time: semi-violent strikes.
With escalating US–China tensions, reshoring back to Europe is becoming a very real option.
“In a world of policy-driven fragmentation, being part of a large, rules-based and functioning single market of consumers with a high level of per capita income, isn’t the worst position to be in. 2024 is probably going to be a rough ride, so riding it out in Europe seems to be a good idea.”
The IMF expects the euro area to grow by 1.2% in 2024 (up from 0.7% in 2023), and the UK by 0.6% (up from 0.5%).