Summary
Global foreign direct investment (FDI) is becoming more selective. Investment decisions are increasingly shaped by technological competition, the energy transition, supply-chain resilience and economic security. Cross-border investment is concentrating in capital- and technology-intensive activities, from AI infrastructure and semiconductors to critical minerals, clean technologies, and digital infrastructure. Participation in these sectors is becoming more demanding for most developing countries. The challenge is to identify realistic entry points in evolving value chains, turn them into investable opportunities and avoid costly subsidy races. Without targeted national strategies and stronger international cooperation, today’s investment shifts risk creating a new development divide. With the right policies, they can become pathways for resilience, diversification and structural transformation.
Global foreign direct investment resilience masks uneven development gains
The World Investment Report 2026 just published by UNCTAD indicates that global FDI showed resilience in 2025, rising by 6 per cent, to $1.6 trillion, but the recovery remained fragile. Much of the increase was driven by stronger inflows in a limited number of large economies and in conduit economies. Excluding conduit flows, global FDI increased by 4 per cent.
The development picture is mixed. FDI inflows rose by 11 per cent in developed economies and by 2 per cent in developing economies. Developing economies continued to account for a large share of global FDI inflows - 55 per cent in 2025 - and their inflows remained above their 15-year average. However, investment remains highly concentrated, with just 10 emerging markets receiving about 76 per cent of all FDI to developing economies. FDI inflows to least developed countries rose by 21 per cent, but still represent only about 3 per cent of global FDI, with flows concentrated in a small number of mostly resource-rich economies.
This matters because FDI is not only a source of finance. It is also a channel for technology transfer, infrastructure development, industrial upgrading, skills formation and participation in global value chains. When investment concentrates, development opportunities concentrate with it.
Strategic sectors may become the next development divide
Investment is growing fastest in sectors at the centre of global strategic competition. Announced greenfield investment in sectors linked to technological competition, economic security and the energy transition rose from $109 billion in 2020 to $576 billion in 2025. Their share of global greenfield investment increased from 16 per cent to 44 per cent over the same period.
Together, these sectors will shape the next phase of production and trade. AI infrastructure depends on data centres, cloud systems, computing capacity and digital connectivity. Semiconductors are essential inputs into AI, advanced manufacturing, digital infrastructure and electric vehicles. Critical minerals and strategic materials underpin renewable energy systems, batteries, grids and clean technologies. Energy-transition technologies are creating new manufacturing and supply-chain opportunities around electric vehicles, batteries, hydrogen and related industrial systems.
Yet participation in these sectors is already highly unequal. Across these sectors, in 2025, the top three investor economies accounted for about 70 per cent of announced greenfield investment, while the top three recipient economies accounted for about 55 per cent. Entry requires more than low costs. It depends on reliable power, digital connectivity, skilled labour, standards compliance, regulatory certainty, financing capacity and dense industrial ecosystems.
For developing countries, the risk is twofold. Some may be excluded from higher-value investment networks altogether. Others may participate only in lower-value segments, such as raw material extraction, basic assembly and low-margin supply functions. Supply-chain reconfiguration may open new entry points as multinational enterprises adjust production networks to manage trade-policy uncertainty, resilience concerns and access to key inputs and markets. But these opportunities are selective and capability-intensive. Without deliberate policy action, they could entrench, rather than reduce, existing inequalities.
Industrial policy is back, but fiscal space is unequal
Trade and investment decisions are no longer shaped primarily by efficiency. Geopolitics, resilience and risk management now play a central role. Firms are reassessing exposure to tariffs, export controls, standards, security screening, logistics risks and geopolitical alignment. The 2026 UNCTAD survey of investment promotion agencies confirms this shift: 76 per cent of respondents identified geopolitical tensions or conflicts among the main factors affecting investment over the previous three years, while 54 per cent cited trade-policy uncertainty.
Governments are responding with more active industrial policy. Incentives, subsidies, screening mechanisms, outbound controls and other economic-security tools are increasingly used to steer investment towards priority sectors while limiting transactions perceived as creating strategic vulnerabilities.
But countries do not have equal resources to influence these investment decisions. China, the European Union and the United States together account for roughly half of all recorded industrial policy interventions over the past decade. The divergence in fiscal “firepower” is also stark: in developed economies, the value of subsidies directed at specific firms has risen sharply in recent years, while in developing countries it has stagnated (figure 1).
For developing countries, the implication is not to avoid industrial policy, but to use it selectively. Most of these countries cannot win a subsidy race and should not try. The priority is to build stronger fundamentals and credible investment propositions. To do so, they should deploy limited public resources strategically: strengthening the fundamentals that investors require and targeting policy support to investable opportunities.
What developing countries can do
FIRST, countries should identify clear priorities and realistic entry points. The issue is not whether a country can enter “semiconductors”, “AI” or “clean technologies” as broad sectors. The question is whether it can identify feasible segments within those sectors - such as testing, packaging, data services, supplier upgrading, mineral processing, logistics, renewable power for industry or regional manufacturing niches - where existing capabilities can be strengthened and translated into investment projects.
SECOND, priorities must be made investable. Reliable infrastructure, affordable and stable power, regulatory predictability, effective investment facilitation, standards compliance, skills and bankable project pipelines determine whether countries are considered or bypassed. Identifying priority sectors is therefore only the first step. Without the capacity to implement reforms, prepare projects and remove practical bottlenecks, priorities are unlikely to translate into investment.
THIRD, safeguards should be targeted and risk-based. Blanket restrictions in sensitive sectors can deter investment regardless of the actual risk profile of a transaction, and may fail to capture risk arising from minority stakes, complex ownership structures, access to sensitive data or critical infrastructure. A more effective approach is to focus scrutiny on clearly defined risks, while keeping the broader investment environment open and predictable.
FOURTH, regional integration should be used to create scale. Many developing countries are too small to attract investment into capital-intensive strategic sectors on their own. By linking markets, harmonizing standards, improving infrastructure and building regional supplier networks, regional integration can turn fragmented national markets into more credible investment platforms, particularly in transport, energy, logistics, digital connectivity and manufacturing value chains.
What the international community can do
International cooperation is essential to prevent a more strategic investment landscape from becoming a more exclusionary one.
THE FIRST PRIORITY is to preserve an open, predictable and transparent investment environment that allows developing countries to participate in global production while retaining policy space for structural transformation. This requires greater transparency on incentives, subsidies, screening measures and localization requirements, as well as good-practice principles for security-related investment measures.
THE SECOND PRIORITY is to deepen de-risking mechanisms. Political risk and elevated financing costs remain major barriers to investment in developing economies. Political risk insurance, guarantees and blended finance can help reduce perceived risks, particularly where project fundamentals are sound but investor confidence is weak. These instruments are especially important for least developed countries and economies facing high financing costs.
THE THIRD PRIORITY is to build investable ecosystems and project pipelines, rather than de-risking isolated transactions. Too often, support is organized around individual deals rather than the broader investment environment in which they sit. Multilateral development banks, development finance institutions and export credit agencies could cooperate more systematically on project preparation, risk-sharing platforms and investable pipelines in infrastructure, renewable power for industry, transport, logistics, digital connectivity and strategic processing. The aim should be to make connected investment opportunities bankable, not only isolated projects.
Turning investment shifts into development gains
Current investment shifts will not automatically translate into development gains. In a more selective and policy-driven environment, the development impact of FDI will depend on whether investment strengthens productive capacity, skills, infrastructure, supplier linkages and participation in higher-value segments of international production.
Developing countries need realistic priorities, stronger fundamentals and targeted policies. International partners need to help preserve predictable investment conditions, expand de-risking instruments and support investable development pathways, not only individual transactions. The development challenge is to ensure that a more strategic investment landscape also remains an inclusive one.
