UAE and Australia finalize trade deal to boost exports and investment

RIYADH: Foreign direct investment flows into developing economies dropped to $435 billion in 2023, the lowest level since 2005, as rising trade barriers, geopolitical tensions and growing fragmentation curbed cross-border investment. 

In its Global Economic Prospects report, the World Bank said FDI into advanced economies also dropped, sinking to $336 billion — the weakest level since 1996. 

While data for the 2023 calendar year is the latest available from the World Bank, net FDI into Saudi Arabia — one of the world’s top emerging markets — reached SR22.1 billion ($5.89 billion) in the fourth quarter of 2024, representing a 26 percent increase compared to the previous three months, according to the Kingdom’s General Authority for Statistics. 

Saudi Arabia is aiming to attract $100 billion in FDI annually by the end of this decade, as it seeks to make significant strides in diversifying its economy and reducing its decades-long dependence on oil revenues. 

Commenting on the findings, Indermit Gill, chief economist and senior vice president of the World Bank Group, said: “What we’re seeing is a result of public policy. It’s not a coincidence that FDI is plumbing new lows at the same time that public debt is reaching record highs.” 

He added: “Private investment will now have to power economic growth, and FDI happens to be one of the most productive forms of private investment. Yet, in recent years, governments have been busy erecting barriers to investment and trade when they should be deliberately taking them down. They will have to ditch that bad habit.” 

FDI inflows to developing countries in 2023 accounted for just 2.3 percent of their combined gross domestic product — about half the share recorded in the 2008 peak.

The report noted that inflows had expanded rapidly in the 2000s, peaking at nearly 5 percent of GDP in 2008, but have since steadily declined. 

Between 2012 and 2023, two-thirds of FDI into developing countries was concentrated in just 10 markets. China captured nearly a third of the total, while Brazil and India accounted for about 10 percent and 6 percent, respectively. 

Advanced economies accounted for nearly 90 percent of total FDI in developing economies over the past decade, with about half of that originating from the EU and the US, the World Bank noted. 

Earlier this month, global credit rating agency S&P Global said FDI inflows into Gulf Cooperation Council countries are expected to slow in 2025 due to rising investor uncertainty. The outlook reflects shifting US trade policies, lower oil prices, and a more gradual rollout of economic diversification projects in the region. 

S&P Global also forecast a net negative impact on global FDI in the near term, driven by the indirect effects of US tariffs, a weaker oil price outlook, and declining global investor confidence. 

Combating challenges and easing restrictions 

The World Bank urged developing nations to ease investment restrictions that have accumulated in recent years, promote trade integration, and broaden participation in their economies. 

Ayhan Kose, the World Bank Group’s deputy chief economist and director of the Prospects Group, said the sharp drop in FDI for developing countries “should sound alarm bells.” 

He added: “Reversing this slowdown is not just an economic imperative — it’s essential for job creation, sustained growth, and achieving broader development goals. It will require bold domestic reforms to improve the business climate and decisive global cooperation to revive cross-border investment.”

The report also outlined policy priorities for developing economies to increase FDI, including accelerating improvements in the investment climate — progress that has stalled in many countries over the past decade. 

Saudi Arabia is among the countries making notable strides to attract FDI by introducing regulatory reforms aimed at easing restrictions. 

In August, the Kingdom approved an updated investment law designed to boost transparency and simplify the investment process, as part of broader efforts to facilitate and expand FDI. 

The updated rule also promises enhanced protections for investors, including adherence to the rule of law, fair treatment, and property rights, alongside robust safeguards for intellectual property and seamless fund transfers. 

In April, Saudi Arabia rose to 13th place in Kearney’s 2025 Foreign Direct Investment Confidence Index, up from 14th in the previous year’s ranking. 

The Kingdom also retained its position as the third-most attractive emerging market, signaling continued global confidence in its transformation strategy. 

Kearney noted that the ranking reflects Saudi Arabia’s bold, reform-driven approach to building an internationally competitive, future-ready economy. 

The World Bank emphasized that countries should amplify the economic impacts of foreign investment by promoting trade integration, improving institutional quality, fostering human capital development, and encouraging broader participation in the formal economy to maximize FDI benefits. 

“Governments can also amplify the benefits by channeling FDI to sectors where the impact is greatest. FDI can also help increase job opportunities for women: the domestic affiliates of multinational enterprises, for example, tend to have a higher share of female employees than domestic firms,” the report stated. 

Saudi Arabia is also among the global frontrunners in efforts to bridge the gender gap in the workforce. 

Speaking during the Future Investment Initiative in Riyadh in October, Saudi Arabia’s Minister of Finance, Mohammed Al-Jadaan, said the nation aims to achieve 40 percent female workforce participation by the end of the decade, having already surpassed its Vision 2030 target of 30 percent. 

He added that 45 percent of small and medium enterprises in the Kingdom are headed by women. 

Underscoring the importance of global cooperation, the World Bank urged all countries to work together to accelerate policy initiatives that can help direct FDI flows to developing economies with the largest investment gaps. 

“Technical and financial assistance to support structural reform efforts in developing countries — especially low-income countries — are critical for facilitating FDI inflows,” the bank concluded.