The IMF report partly read, “The recent slowdown in FDI has been characterized by divergent patterns across host countries, with flows increasingly concentrated among geopolitically aligned countries, particularly in strategic sectors. Several emerging markets and developing economies are highly vulnerable to FDI relocation, given their reliance on FDI from geopolitically distant countries.
“While a range of factors has contributed to this protracted phase, the fragmentation of capital flows along geopolitical fault lines and the potential emergence of regional geopolitical blocs are novel elements that could have large negative spillovers to the global economy. “Firms and policymakers are increasingly looking at strategies for moving production processes to trusted countries with aligned political preferences to make supply chains less vulnerable to geopolitical tensions.”
Speaking on solutions, the fund advised that multilateral efforts aimed at preserving global integration are the best way to reduce the large and widespread economic costs of FDI fragmentation. “Some countries could reduce their vulnerability by promoting private sector development, while others could take advantage of the diversion of investment flows to attract new FDI by undertaking structural reforms and improving infrastructure,” it said.All rights reserved. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from PUNCH.