Amid a global economy shaped by rising geopolitical risks, shifting supply chains, and changing investor expectations, global foreign direct investment (FDI) surprisingly surged—reaching its highest level ever and offering a rare moment of optimism amid the uncertainty – according to IMF’s latest Coordinated Direct Investment Survey.
According to the survey, inward FDI climbed by $1.75 trillion, or 4.4%, reaching a staggering $41 trillion in 2023. This unprecedented milestone reflects not only the resilience of global capital but also the tectonic shifts redefining the investment landscape.
At first glance, the headline figure paints a picture of prosperity: cross-border capital flows are thriving, driven largely by increased investor appetite and economic recovery from the pandemic. Yet beneath the surface lies a more nuanced reality—a game of shifting sands, where traditional destinations are being reassessed, and new strategic priorities are redrawing the global investment map.
Understanding FDI: Greenfield vs Brownfield
To grasp the evolving trends in global foreign direct investment (FDI), it’s essential to understand what FDI truly entails. At its core, FDI represents a long-term financial commitment by an investor or company, typically characterized by acquiring at least a 10% stake in a business entity located in a foreign country. This investment is not just about moving capital—it’s about establishing a lasting interest and influence in the management and operations of a foreign enterprise.
FDI generally takes two primary forms: Greenfield and brownfield investments. Greenfield investment occurs when an investor builds a new business operation from the ground up in a foreign country—such as setting up factories, solar farms, or transport infrastructure. This form of investment often brings in fresh technology, job creation, and local development. In contrast, brownfield investment involves acquiring or expanding an existing business in a foreign market. These projects offer faster market entry and allow investors to capitalize on existing operational frameworks, supply chains, and customer bases.
Real-world examples help illustrate these models. In Egypt, greenfield investment came to life through MIGA’s support for solar power plants, enhancing national energy resilience while reducing harmful emissions. On the other hand, a brownfield example is found in Cambodia, where MIGA-backed support enabled the acquisition and continued operation of a high-voltage transmission line. In both cases, these investments brought in not only capital but also long-term commitments and financial stability, reinforcing the critical role FDI plays in sustainable development.
The Surge: Who’s Winning?
The rise in global FDI was not evenly distributed. Regions such as Central and South Asia, Europe, and North and Central America led the surge. Notably, direct investment between advanced economies jumped by $880 billion, while FDI from advanced to emerging market and developing economies climbed by $538 billion, signaling a broader recovery and increased investor confidence across various economic tiers.
The United States maintained its position as the top destination for FDI, further extending its lead. Singapore, however, was the standout performer in 2023, recording a $307 billion gain in inward investment—the highest increase among all nations. The U.S. followed with a $227 billion gain, trailed by Germany at $164 billion.
Even with declines in the Netherlands and Luxembourg, both countries remained in the global top five alongside the U.S., China, and the U.K. This consolidation at the top underscores how entrenched financial and economic centers continue to dominate, albeit under shifting circumstances.
The Shift: Friend-shoring and Near-shoring on the Rise
Behind the rising FDI numbers lies a changing rationale. The post-pandemic world has seen new considerations enter investment calculus—chief among them geopolitical alignment and geographic proximity.
Terms like “friend-shoring” and “near-shoring” have entered mainstream economic discourse. Friend-shoring refers to the strategy of relocating supply chains and investments to politically aligned countries, reducing risk from geopolitical tensions. Near-shoring, on the other hand, emphasizes placing investments closer to home markets to reduce logistic costs, boost resilience, and enhance efficiency.
A recent global survey of Investment Promotion Agencies (IPAs) confirmed that over 80% believe friend-shoring and near-shoring will significantly shape FDI flows in the coming years. Strikingly, most agencies also expressed optimism that their countries stood to benefit from this trend—a view that may prove overly hopeful given the zero-sum nature of relocation.
As investments are repositioned, some countries will inevitably lose out. Locations that once thrived on cost advantages alone may find themselves overlooked in favor of destinations offering political stability, regional proximity, and integrated infrastructure.
Case Studies in Shifting Strategies
The new era of FDI is already manifesting in real-world examples. A greenfield investment project in Egypt—supported by the World Bank’s Multilateral Investment Guarantee Agency (MIGA)—saw foreign capital funneled into solar power plant development, enhancing the country’s energy security while promoting sustainability. On the other hand, a brownfield investment in Cambodia’s high-voltage transmission sector illustrates how existing infrastructure continues to attract committed, long-term investors.
These projects exemplify the increasingly strategic nature of FDI, where investors prioritize both economic and non-economic returns: energy security, climate goals, and alignment with international development agendas.
Despite the record-breaking figures, risk remains a core concern for investors. In fact, political risk is rising across several regions, threatening to dampen investor confidence even in otherwise attractive markets.
While institutions like MIGA provide political risk insurance, only a small fraction of total foreign investments currently leverage this protection. This underutilization is striking given today’s volatile global climate—from wars and sanctions to sudden policy shifts.
For low-income countries particularly, political and macroeconomic instability remain formidable barriers to attracting and retaining FDI. Many face a “debt overhang”, limited fiscal space, and inconsistent regulatory regimes—all red flags for cautious investors.
The Response: What Developing Countries Must Do
On the face of rising FDI, developing countries face mounting pressure to remain attractive to international investors. To stay competitive, these nations must accelerate structural reforms that foster transparency, stability, and investor confidence. At the core of this strategy is the need for a well-regulated environment that minimizes uncertainty and maximizes returns for foreign investors. Without these foundational elements, developing economies risk falling behind as capital flows are increasingly influenced by geopolitical and economic stability.
Key to this transformation is the simplification of regulatory frameworks, ensuring that policies are clear, predictable, and consistently applied. Governments must also focus on building the infrastructure necessary to support industrial expansion—transport networks, energy systems, and digital connectivity all play critical roles. Beyond the physical sector, incentives matter. Tax relief, subsidies, and other non-tax benefits can tilt investor decisions in a country’s favor.
The World Bank Group has become an essential ally in helping developing countries position themselves as viable investment destinations. Through targeted technical assistance and policy advisory services, the institution guides governments in crafting effective, long-term FDI strategies. Meanwhile, the Multilateral Investment Guarantee Agency (MIGA), a World Bank affiliate, strengthens investor confidence by offering political risk insurance. These guarantees shield investors from non-commercial threats such as expropriation, currency inconvertibility, and political violence—risks that often deter otherwise promising investments.
However, a significant gap still exists in investor awareness, particularly among small and medium-sized enterprises (SMEs), about available protections like political risk insurance. Both host governments and multilateral institutions must prioritize education and outreach, making it easier for investors to understand and access these tools.
The Paradox of Growth
The 2023 investment surge presents a paradox. On one hand, the numbers scream opportunity. A $41 trillion market signals robust investor interest and post-pandemic recovery. On the other, the shifting tides in global politics and trade dynamics point to a more fragmented future—one where strategic alignment, regional integration, and resilience dictate capital flows more than ever before.
For investors, the challenge is clear: identify which sands are shifting and which remain firm. For countries, especially those in the developing world, the task is urgent: make themselves the bedrock upon which these new flows settle.
The Role of the World Bank Group: Bridging the FDI Gap
In the face of these realignments, developing countries need not remain passive observers. Institutions like the World Bank Group, through arms like MIGA (Multilateral Investment Guarantee Agency), are playing a critical role in leveling the playing field. Developing economies must focus on: Strengthening regulatory frameworks; Creating investor-friendly environments; and Providing stable and predictable macroeconomic conditions.
The World Bank Group offers not only technical assistance and policy advisory support, but also political risk insurance, a powerful but underutilized tool. Despite increasing political risks, only a small fraction of FDI is currently covered by such insurance, suggesting both a gap in investor awareness and a need for product innovation from insurers.
“There is a real opportunity here,” says a World Bank investment expert. “We need to educate investors about what political risk insurance can offer, and we also need to update our offerings to match the reality on the ground—climate risks, cyber threats, and regulatory shocks.”
The Game Is On
The rise in global FDI to a record $41 trillion is more than a headline—it’s a wake-up call. Countries can no longer rely on legacy advantages like low labor costs or natural resources alone. In a world of friend-shoring, near-shoring, and growing political risk, success in attracting foreign capital will depend on trust, proximity, predictability, and partnership.
Investors are on the move. The game of global capital has entered a new phase. The sands are indeed shifting. And only those who adapt will rise with the tide.