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The digital economy has become an even more important driver of global economic growth, but a high concentration of investment risks leaving many developing economies behind, according to UN Trade and Development (Unctad).

Global greenfield foreign direct investment in the digital economy has nearly tripled from $131bn in 2020 to $360bn in 2024, according to Unctad’s latest World Investment Report, released on June 19. But digital investment in the developing world has been highly concentrated in just a few countries, mainly in Asia, the latest WIR also notes.

Almost 80 per cent of the $531bn of greenfield FDI announced in the digital economy across the developing world went to just 10 countries between 2020 and 2024, according to Unctad. These countries were, in descending order: India, Malaysia, Indonesia, Singapore, Vietnam, Mexico, China, Brazil, Saudi Arabia and Thailand.

“The development of the digital economy is extremely uneven,” reads Unctad’s report, adding that emerging digital technologies provide important opportunities for global economic development. There remains an investment gap for digital infrastructure of at least $1.6tn, mostly in the developing world, according to the International Telecommunication Union.

“In the new wave of digital transformation driven by artificial intelligence, big data and cloud computing, the digital divide has not narrowed but widened,” said Unctad’s report, adding that FDI is a “critical component” of bridging the global digital divide and associated infrastructure investment gap. In 2024, only 27% of the population in low-income countries were online, compared to 93% in high-income countries, according to the ITU.

Most LDCs have not yet benefited from the upward trends in FDI in the digital economy

Least-developed countries are most at risk from this growing digital divide, with investment hampered by various barriers, including high investment risks and costs of capital. “Most LDCs have not yet benefited from the upward trends in FDI in the digital economy,” reads Unctad’s report.

Technology firms have also become more prominent among the 100 largest multinational enterprises, based on their foreign sales, assets and employment, continuing a long-term trend towards “asset-light” FDI. Just five firms account now account for half of total sales in the top 100 MNEs, and the majority of the top 20 digital players are from the US and China.

“While this shift could create new opportunities for developing economies, such as data centres, the international expansion of digital MNEs depends not only on the availability of infrastructure but also on access to knowledge, digital skills and supportive ecosystems,” Nan Li Collins, Unctad’s senior director of investment and enterprise told fDi, adding that this is why digital investment remains concentrated in a few developing nations.

A large part of the international investment by digital MNEs also increasingly involves services. While essential to the digital economy, FDI in digital services and data centres have less potential to create jobs and direct development impact than traditional FDI in industrial sectors.

“Without investment in skills and digital governance, many countries risk staying on the margins of the digital economy,” she added.

To attract FDI in the digital economy, Unctad suggests that developing countries strengthen infrastructure, connectivity, digital skills and establish a sound policy framework. More should be done to eliminate obstacles to foreign investors and better benefit from digital FDI, Unctad notes.

Overall, global FDI increased by 4 per cent to $1.4tn in 2024, but most of this came from volatile financial flows through several European economies, the WIR argues. When excluding these, global FDI flows declined by 11 per cent, marking the second consecutive year of a double-digit decline.

Trade tensions and policy uncertainty have also weighed on investor sentiment, leading Unctad to give a “negative” outlook for international investment in 2025. “While tariffs have led to some investment project announcements aimed at restructuring supply chains in manufacturing sectors, their main effect has been a dramatic increase in investor uncertainty,” read Unctad’s report.