Foreign Direct Investment (FDI) patterns are undergoing a profound transformation, with services taking center stage in the global investment landscape. This shift is reshaping not only the nature of cross-border investments but also the development trajectories of both developed and developing economies.
Over the past two decades, the share of services in total greenfield FDI projects has increased dramatically. According to data from fDi Markets, services now account for over 80% of all announced cross-border greenfield projects, up from around 60% in the mid-2000s. This trend reflects a broader global economic shift towards service-oriented activities, driven by technological advancements and changing consumer preferences.
One of the most notable aspects of this transformation is the “servitization” of manufacturing. Traditional manufacturing industries are increasingly investing in service-related activities, such as research and development, marketing, and after-sales support. By 2023, service-oriented projects within manufacturing industries represented the majority of FDI in these sectors, nearly doubling from their share in 2003.
This shift towards services is facilitated by the emergence of asset-light investment models. Unlike traditional manufacturing investments that require substantial physical infrastructure, service-oriented FDI often relies more on intangible assets such as intellectual property, software, and human capital. This transition is particularly evident in the rapid growth of investments in business and ICT services, which have more than doubled their share in total FDI projects over the past two decades.
The implications of this great FDI shift are far-reaching. For developed economies, it reinforces their competitive advantage in high-value services sectors, potentially widening the economic gap with developing nations. However, it also presents challenges, as traditional manufacturing jobs may continue to decline.
For developing economies, the picture is more complex. On one hand, the shift towards services FDI offers opportunities to leapfrog traditional industrialization pathways and integrate into global value chains through service-oriented activities. On the other hand, it poses significant challenges, particularly for countries that have relied on manufacturing FDI as a key driver of economic development.
The convergence of sectoral patterns across regions further complicates the landscape. The traditional distinctions between developed and developing economies in terms of the types of FDI they attract are blurring. By 2023, the share of services in FDI projects was similar across both developed and developing regions, at around 80%.
As this great shift continues to unfold, policymakers and businesses alike must adapt their strategies. For developing countries, this may mean focusing on building the necessary digital infrastructure and skills to attract service-oriented FDI. Developed economies, meanwhile, may need to reconsider their industrial policies to maintain competitiveness in an increasingly service-dominated global economy.
The rise of services in FDI represents not just a change in investment patterns, but a fundamental restructuring of the global economic landscape. As we move forward, understanding and adapting to this shift will be crucial for economic growth and development worldwide.
Written by Genan Wishah
