Foreign Direct Investment (FDI) plays a pivotal role in the growth and development of the manufacturing sector. It facilitates capital inflow, technology transfer, and employment generation. However, recent trends indicate a dynamic shift in global FDI patterns, influenced by geopolitical tensions, policy changes, and evolving market demands.
In 2023, global FDI experienced a decline to $1.3 trillion, attributed to weak economic conditions and geopolitical crises. The first half of 2024 showed signs of recovery, with total FDI reaching $802 billion, signaling modest growth for the year. Countries with stable political environments and business-friendly policies remain attractive to foreign investors.
Thailand witnessed a significant increase in investment applications in 2024, reaching a 10-year high with a total of 1.14 trillion baht ($32.8 billion), marking a 35% rise from the previous year. This growth was primarily driven by foreign investments in data centers and cloud services. Singapore emerged as the leading source of foreign direct investment, contributing 43% of total FDI applications, mainly in digital services and electronics manufacturing.
India's manufacturing sector experienced a decline in FDI inflows in FY24. The Reserve Bank of India reported an 18% decrease, with FDI inflows dropping from $11.3 billion in FY23 to $9.3 billion in FY24. This marks one of the lowest inflows in the past five years.
Despite the recent dip, India's manufacturing sector has shown significant growth over the past decade. FDI inflows surged almost 69% to reach $165.1 billion, compared to $97.7 billion in the previous decade. This growth is attributed to initiatives like the Production-Linked Incentive (PLI) schemes, which have attracted substantial investments across various sectors.
Ongoing geopolitical tensions, such as the US-China trade war, have led companies to reconsider their investment strategies. Countries like Vietnam have positioned themselves as attractive alternatives by offering incentives in high-tech sectors like semiconductor manufacturing and artificial intelligence.
Government policies play a crucial role in shaping FDI trends. Thailand's Board of Investment reported a 25% year-on-year increase in foreign investment pledges, totaling 832 billion baht. This growth was driven by policies promoting Thailand as a safe and neutral location for digital sector and smart electronics projects.
The rise of digital technologies and automation has influenced investment decisions. Manufacturers are increasingly investing in smart factories and digital infrastructure to enhance productivity and competitiveness. Countries that offer robust digital ecosystems are witnessing increased FDI in their manufacturing sectors.
The future of FDI in the manufacturing sector appears cautiously optimistic. While short-term challenges persist, long-term prospects remain positive due to the growing demand for advanced manufacturing capabilities and the continued implementation of supportive government policies. Countries that adapt to changing global dynamics and invest in infrastructure and policy reforms are likely to attract sustained FDI inflows.
FDI remains a cornerstone for the growth of the manufacturing sector. While recent trends indicate some challenges, the long-term outlook is positive. Strategic policy initiatives, geopolitical considerations, and technological advancements will continue to shape the landscape of FDI in manufacturing. Countries that proactively address these factors are poised to reap the benefits of sustained foreign investment.