Malawi’s prospects for attracting foreign investment face a threat due to global economic challenges as the latest World Bank report reveals a sharp and sustained decline in foreign direct investment (FDI) to developing economies.
According to chapter three of the June 2025 Global Economic Prospects report published on Monday, FDI inflows to emerging markets and developing economies (EMDEs) have plunged to just 2 percent of GDP—less than half their 2008 peak of nearly 5 percent.
This situation is particularly severe for low-income countries (LICs) like Malawi, which received just 2 percent of total FDI to EMDEs and less than FDI flows between 2012 and 2023.
“The three largest EMDEs—China, India and Brazil— jointly received almost half of total FDI inflows to EMDEs, on average, during 2012-23, about 10 percentage points more than in 2000-11. China received nearly one-third of inflows to EMDEs during 2012-23, while Brazil and India received 10 percent and 6 percent, respectively,” states the report
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The World Bank report highlights that FDI has been a key source of long-term capital for developing economies — bringing funds, market access, job creation and productivity gains.
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Malawi has been courting foreign investment to unlock sectors like tourism, agriculture, and manufacturing, which are among the country’s key priority sectors.
However, the bank warns that global conditions are no longer favorable, citing rising geopolitical tensions, economic policy uncertainty, and a slowdown in trade integration, which is affecting investor confidence.
Key among World Bank recommendations includes reforms that foster a favorable investment climate, reducing barriers to international trade and investment and policies that strengthen global cooperation.
“The beneficial effects of FDI on growth and economic development are not guaranteed without sustained conducive conditions in recipient economies,” it adds.
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While foreign direct investment is often touted as a key solution for financing development, National Working Group on Trade Policy Chairperson Fredrick Changaya has urged caution and discernment when courting international capital.
“While there is no doubt that FDIs are critical to unlock potential of investee countries, it is always critical to dissect the economic activity for its strategic evaluation of net impacts on any given economy. We must stop the wholesale adoption of economic concepts without evaluating their net strategic impacts,” Changaya said.
Changaya argues that Malawi must move beyond the assumption that structural reforms alone will draw meaningful FDI.
“We often think that improving our investment climate will automatically attract investors. But the truth is, many FDIs in developed economies are market-seeking— like luxury goods manufacturers— who wouldn’t consider Malawi even with world-class reforms.”
He therefore stressed the need for carefully targeted investment strategies and FDIs that are export-oriented that are able to generate their own foreign exchange.
Economist Marvin Banda noted that the main barriers to financing confidence in the Malawian economy have been forex generating capacity of the production processes.
“FDI is highly correlated with an economy’s ability to produce forex for repatriation to the mother-countries of the foreign in
Banda also emphasized the need for domestic-led investments for Malawi to make significant progress.
“FDI should be a secondary investment and not the main driver of economic growth because the nation still lacks the capacity to manage resources; foreign and domestic.
“The economy requires domestic led investment and growth not foreign investment. This doesn’t mean that the future doesn’t give room for collaborative investment,” he said.
