(MENAFN- Caribbean News Global) GENEVA, Switzerland – Trade tensions, geopolitical risks, regional conflicts and supply-chain de-risking will continue to weigh on global investment flows through the rest of 2025.

Global foreign direct investment (FDI) fell 3 percent in the first half of 2025, extending a two-year slump as trade tensions, high interest rates and geopolitical uncertainty kept investors cautious, UN Trade and Development (UNCTAD) said in its latest Global Investment Trends Monitor.

The drop was driven by developed economies, where cross-border mergers and acquisitions (M&As) – which normally make up a large share of their FDI – fell 18 percent to $173 billion.

Developing economies fared better overall, with flows remaining flat. But trends diverged by region. Inflows rose 12 percent in Latin America and the Caribbean and 7 percent in developing countries in Asia but fell 42 percent in Africa.

Infrastructure and manufacturing take a hit

High borrowing costs and economic uncertainty continued to squeeze investment in industry and infrastructure in the first half of 2025.

Announcements of greenfield projects – when firms build new operations abroad – fell 17 percent in number, driven by a 29 percent decline in supply-chain-intensive manufacturing such as textiles, electronics and automotives, amid tariff uncertainty.

International project finance – critical for infrastructure development – also declined, with deal numbers down 11percent and value 8 percent.

The trend was more positive in developing economies, where project finance deals fell only 2 percent after two years of sharp declines. Despite fewer deals, the total value jumped 21percent, lifted by a few large-scale projects in Panama, the United Arab Emirates and Uzbekistan. A broad recovery has yet to emerge.

Bright spot: AI fuels new investment

Despite fewer projects, the value of global greenfield investment rose 7 percent, lifted by major projects in artificial intelligence (AI) and the digital economy.

For example, the United States recorded $237 billion in new greenfield projects in the first half of 2025 – nearly matching the 2024 total and four times the past decade's half-year average. More than half of the value came from AI-related sectors, particularly semiconductors ($103 billion) and data centres ($27 billion).

Sustainable development investment weakens further

Investment in sectors critical to the Sustainable Development Goals (SDGs) continued to fall in early 2025. SDG-related investment projects in developing countries were down 10 percent in number and 7 percent in value in early 2025, following steep declines last year.

Projects in LDCs are on track to fall another 5 percent in 2025, possibly hitting their lowest level since 2015.

Investment in infrastructure remained weak in developing economies.

• Internationally financed projects – including in transport and utilities – remained about 25 percent below the decade average.
• In LDCs, project finance in infrastructure fell another 85 percent in value.
• Greenfield infrastructure activity declined 31percent in value and 25 percent in number, led by sharp contractions in Latin America and the Caribbean (-78 percent in value and -43 percent in number).

Renewable energy investment, the largest SDG-relevant sector, also weakened.

• Globally, international project finance in the sector – which has accounted for nearly two-thirds of global totals in recent years – fell another 9 percent in number and 10 percent in value.
• Global greenfield projects in renewable energy also declined 55 percent in number and 21percent in value. In developing economies, projects fell 23 percent. In LDCs, they declined by 31 percent in number and 18 percent in value.

Investment in water and sanitation fell 40 percent, with no new projects in Africa or LDCs and a 97 percent decrease in Latin America and the Caribbean.

Only agrifood systems and health showed positive trends in developing economies, with investment holding steady in agrifood and rising 37 percent in health, driven primarily by new projects in Asia.

Outlook: Persistent headwinds

The global investment climate will remain challenging through the rest of 2025. Geopolitical tensions, regional conflicts, economic fragmentation, and efforts to de-risk supply chains continue to weigh on flows.

Still, easing financial conditions, rising M&A activity in the third quarter and higher overseas spending by sovereign wealth funds could support a modest rebound by year-end.

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