Global Investment in Key Development Sectors Stagnates as 2024 Looms: A Crisis for Developing Economies?

The SDG Investment Trends Monitor report for September 2024 reveals a worrying stagnation in international investments in sectors critical for sustainable development, such as infrastructure and WASH, while renewable energy continues to thrive. Regional disparities persist, with LDCs and SIDS facing significant investment shortfalls. The report highlights the need for greater involvement of the private sector and multilateral development banks to address these gaps.

International investment in Sustainable Development Goal (SDG)-relevant sectors has faced significant stagnation since 2015, with certain critical areas—such as renewable energy—experiencing growth while others, like infrastructure and agrifood systems, struggle to attract international attention. According to the recently released SDG Investment Trends Monitor (September 2024), foreign investments, crucial for sustainable development in emerging economies, have dwindled. This report highlights both the challenges and opportunities for improving SDG investment, focusing on the disparities among sectors and regions.

A Mixed Bag: Renewable Energy vs. Other Sectors

The report points out that investments in renewable energy have been a lone success story in the past decade, with funding tripling across developing regions. Renewables, especially in Africa and Latin America, have become a central pillar of international development strategies, thanks in part to a growing global focus on combating climate change. Renewable energy projects now make up a third of all SDG investments in Africa and Latin America, and around a fifth in developing Asia.

However, the same cannot be said for other sectors. Infrastructure, a key enabler for long-term growth in developing economies, has seen stagnation, particularly in Africa, Latin America, and the Caribbean, where investment in transport, telecommunications, and non-renewable energy infrastructure has declined. Even more concerning is the significant decline in investment in water, sanitation, and hygiene (WASH) projects. In some regions, notably West Asia, WASH investments have been halved since 2015. The agrifood systems sector has also taken a sharp hit, with a 25% global drop in project numbers since 2015.

The disparity between renewable energy and other SDG-relevant sectors demonstrates an uneven distribution of international investment, which could potentially undermine the broader goals of sustainable development. Without addressing the shortfall in critical areas such as infrastructure and WASH, developing countries may struggle to meet the United Nations’ 2030 SDG targets.

Regional Disparities Highlight the Challenges for Developing Economies

One of the most pressing concerns raised by the SDG Investment Trends Monitor is the uneven distribution of international investments across different regions. Since 2015, 18 developing economies, including several Least Developed Countries (LDCs) and Small Island Developing States (SIDS), have not received any internationally financed SDG projects. This disparity further exacerbates the development gap between nations, as countries already grappling with limited resources are left without the financial backing necessary to advance their infrastructure, health, education, or agrifood systems.

The report notes that while Africa, home to a large portion of LDCs, has attracted fewer international projects overall, it still exceeds its share of total foreign direct investment (FDI) in developing regions. Much of this is driven by renewable energy and infrastructure projects, often backed by consortia of investors, multilateral development banks (MDBs), and local governments. Meanwhile, developing Asia continues to lead in SDG investment, accounting for over half of all projects, driven by its dominance in renewable energy and its construction sector.

In contrast, Latin America and the Caribbean have seen a more modest 45% increase in SDG projects since 2015. This has been mainly due to ambitious climate goals and steady international investment in health and education.

The Role of MDBs and Private Sector Engagement

The report sheds light on the pivotal role played by multilateral development banks (MDBs) in mobilizing private investment for SDG projects in developing economies. MDBs contribute significantly to infrastructure and social projects, especially in regions where domestic investment capacity is limited. In LDCs, for instance, MDBs participate in about a quarter of international projects, primarily in the human capital, infrastructure, and renewable energy sectors.

However, the involvement of foreign private investors remains limited, with private sector sponsors participating in only about 20% of SDG project finance deals in sectors like infrastructure and renewable energy. There remains a substantial opportunity for further private investment to bridge the gaps, particularly in sectors such as health, education, and WASH, where foreign private participation remains low.

One noteworthy observation from the report is China’s Belt and Road Initiative (BRI), which has emerged as a significant driver of SDG investments in Asia, Africa, and Latin America. The BRI, initiated in 2014, has spurred a range of development projects, particularly in infrastructure, healthcare, and renewable energy. In Africa, for instance, BRI projects account for a third of all investments in social infrastructure sectors such as healthcare, education, and WASH.

Looking Ahead: The Outlook for 2024

The outlook for 2024 remains challenging. Preliminary data from the report indicates a continued decline in greenfield projects and international project finance deals, particularly in renewable energy, agrifood systems, and infrastructure. The number of SDG-related projects is expected to fall by over 25% in LDCs, largely due to declining investments in infrastructure and agrifood systems.

However, there is a silver lining. While the number of projects may be declining, the total value of investments has seen a 7% increase, thanks to large-scale projects, especially in health and infrastructure. A few significant deals, such as the $35 billion Ras El-Hekma City development in Egypt, are expected to shape the landscape of SDG investments in 2024. This project includes the construction of hospitals, schools, and public service buildings, demonstrating the potential for large, impactful investments despite the overall slowdown in project numbers.

The SDG Investment Trends Monitor underscores the urgency of reigniting international investment in sectors critical to achieving the United Nations’ Sustainable Development Goals. While renewable energy has been a bright spot, significant investment shortfalls in infrastructure, WASH, and agrifood systems threaten to derail progress, particularly in the world’s most vulnerable regions. The role of MDBs and the private sector is crucial in closing these gaps and ensuring that no country is left behind in the race to achieve the 2030 SDG targets.