According to the UNCTAD (United Nations Conference on Trade and Development), global Foreign Direct Investment (FDI) fell by 3 per cent in the first half of 2025, marking the continuation of a two-year slump driven by trade tensions, high interest rates, and geopolitical uncertainty. India, along with other developing nations, experienced a sharp decline in greenfield manufacturing projects due to these challenges, particularly the high US tariffs.

Greenfield projects, where firms establish new operations abroad, saw a 17 per cent drop in the number of announcements globally. The manufacturing sector, particularly supply-chain-intensive industries like textiles, electronics, and automotives, faced the most significant decline, with a 29 per cent reduction in such projects amid tariff uncertainty.

This downward trend was observed across developing regions: project values in Africa dropped by 76 per cent, in Latin America and the Caribbean by 56 per cent, and in developing Asia by 35 per cent. The number of greenfield manufacturing projects, seen as a more reliable indicator of investment activity, fell by 26 per cent overall, with developed economies seeing a 29 per cent decline, while developing economies recorded a 21 per cent drop. Countries that experienced substantial tariff increases from the United States, such as Vietnam, Bangladesh, India, Brazil, and South Africa, saw some of the largest declines in greenfield manufacturing projects.

Moreover, in the first half of 2025, cross-border M&A values in developing countries turned negative, primarily due to large divestments in the extractives and utilities sectors. A notable example was the Siemens Energy India spin-off, where the German company divested its shares to domestic stakeholders in India for $11 billion.

Looking ahead, the global investment environment is expected to remain challenging for the rest of 2025. Geopolitical tensions, regional conflicts, economic fragmentation, evolving industrial policies, and efforts by multinationals to de-risk supply chains are likely to continue weighing on FDI flows. However, easing financial conditions, an uptick in M&A activity in the third quarter, and increased spending by sovereign wealth funds could support a modest rebound by year-end.

(Source: Deccan Chronicle)