Private business activity, investment and innovation are major drivers of productivity, employment and economic growth. The Financing for Development outcomes call on businesses to apply their creativity and innovation to solving sustainable development challenges, and invites them to engage as partners in implementation of the sustainable development agenda. In understanding the role of the private sector in financing sustainable development, it is important to recognize that the private sector includes a wide range of diverse actors, from individual households and international migrants to multinational corporations, and from direct investors to financial intermediaries, such as banks and pension funds.
The following charts present investment trends and data, while the thematic clusters below provide information for monitoring progress in implementing commitments from the Addis Ababa Action Agenda.
The figure shows the breakdown of recent trends in net international (or cross-border) financial flows to developing countries by type of flow: including foreign direct investment, portfolio investment and other investment (mostly bank lending). International financial flows to developing countries, particularly portfolio flows and other cross-border bank loans (represented by other investment) have been highly volatile while FDI has been more stable.
Gross fixed capital formation is a proxy for domestic investment. Gross fixed capital formation includes domestic public and private investments.
For many developing economies, FDI is the largest source of external finance. It is also more stable than other cross-border financial flows, such as portfolio investment and cross-border bank loans. FDI can enhance productive capacity, transfer know-how and generate employment, particularly when it creates linkages with domestic suppliers and help local companies integrate into international value chains.
The relative size of the financial sector in the economy has increased significantly since 2000 across country groups. Financial sector depth more than doubled in LDCs and increased significantly in middle-income countries over the period, although it is still at relatively low levels, particularly in sub-Saharan Africa.