Less Investment, Less Aid: How FDI Shortfalls are Hurting Global Relief Efforts

The United Nations Headquarters in New York. Credit: Unsplash/Nils Huenerfuerst

By Maximilian Malawista
NEW YORK, Jun 24 2025 (IPS)

The world is losing interest in investing in others, especially when it comes to humanitarian aid. Foreign Direct Investment (FDI) has slowed to critical levels, weakening emerging markets and further slowing growth across developing nations.

As of 2025, FDI has dwindled to its lowest levels yet, largely due to heightened trade tensions among barriers for international investment. Lowered levels of FDI indicate a move to domestic and isolationist efforts, increasing the likelihood of failed budgetary cooperation to international intergovernmental bodies such as the United Nations.

This is already evident in the UN’s budgets for the Secretariat and for humanitarian aid operations. With many of the UN’s largest donors deciding to cut back on their contributions, the organization will now see a 20 percent reduction in its workforce (6,900 jobs), in addition to sizing down humanitarian aid operations globally. On June 20th, Spokesperson for the Secretary General Stéphane Dujarric remarked, “no office in the UN will be exempt from the 20 percent reduction, and that includes the Secretary General’s office.” This would suggest that the cuts have been brought on due to the reduced budget, and not a want for managerial optimization of the UN’s staff. Under U.S. President Donald Trump, nearly USD 1.5 billion in missed payments have contributed to a USD 3.7 billion budget cut to the UN. This financial strain has been further exacerbated by multiple overdue payments from China. Together, China and the U.S. make up a little over 40 percent of the UN’s total budget.

These cuts have also been seen across the UN Office for the Coordination of Humanitarian Affairs (OCHA), where “the deepest funding cuts ever to hit the international humanitarian sector” have occurred. This has resulted in resulting in OCHA to presenting their new global “hyper-prioritized” appeal, aimed at supporting 114 million people facing life threatening necessities worldwide. The new plan asks for USD 29 billion in funding, a decrease of USD 15 billion called for in the previous plan.

“We have been forced into a triage of human survival,” said Tom Fletcher, Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator .“The math is cruel, and the consequences are heartbreaking. Too many people will not get the support they need, but we will save as many lives as we can with the resources we are given.”

The Global Humanitarian Overview for 2025 originally called for USD 44 billion and aimed to reach about 180 million people out of the nearly three hundred million in need. However as of June, only USD 5.6 billion has been received, less than 13 per cent of the appeal. As a result, aid will be disbursed not purely by human necessity, but by cruel and cold calculations.

With the new calculations, the new plan was designed with three goals. Firstly, by reaching the people facing the most urgent conditions, using a scale ranking humanitarian need for aid, prioritizing cases that reached level 4 (Extreme) and level 5 (Catastrophic) as a starting point for disbursement. Second, the prioritization of life-saving support, according to the planning already concluded in the 2025 Humanitarian Response. Third, ensuring that limited resources are directed based on where they can do the best, accounting for speed of disbursement capabilities.

In his statement on the situation, Fletcher concluded by saying: “Brutal funding cuts leave us with brutal choices. All we ask is 1 percent of what you chose to spend last year on war. But this isn’t just an appeal for money – it’s a call for global responsibility, for human solidarity, for a commitment to end the suffering.”

The Investment-Aid Correlation

The shortfall in humanitarian aid funding has directly coincided with global FDI pull backs, reflecting an investor who is less donor-confident, having a decreased interest in bilateral engagement, and overall lack of security about putting money towards fragile states. For the 2023 financial year, developing economies received USD435 billion in FDI (which was USD 867 billion in 2022), the lowest since 2005. A larger slowdown has also been seen for advanced/high-income economies receiving USD 336 billion in 2023, the lowest since 1996. FDI as a portion of gross domestic product (GDP) accounted for 2.3 percent of developing economies in 2023, which is only half of what it was in 2008 at its peak year.

To combat the shortfalls of decreased FDI, The World Bank identified a three-policy priority plan, specifically for developing economies. The first priority would be to “redouble efforts to attract FDI” by easing restrictions and speeding up investment. According to the World Bank, a 1 percent increase in countries’ labor productivity has been associated with a 0.7 percent increase in FDI inflows.

The second priority would be to “amplify the economic benefits of FDI”, which will involve offering a greater quality of development post investment, and uplifting sectors that create opportunities for underrepresented groups. The third priority would be to “advance global cooperation” by creating initiatives to increase multi-sectoral/international flows, offering geopolitical relief, and creating structures to support developing economies.

By boosting FDI, this plan would also encourage UN member states to expand or maintain their current humanitarian contributions. FDI can be seen as a signal for the depth of global connectedness, with stronger investment flows reinforcing a shared commitment to the delivering of aid. To establish the most efficient system, everyone is needed, and that includes the mobilization of capital and communication. An increase in FDI provides a crucial backbone for countries struggling with crises. While the UN can support and implement as many aid plans as possible, true impact depends on the individual state’s willingness to invest in these developing nations. Without this investment, these economies will remain stagnant, unable to recover and grow, falling behind the world stage indefinitely.

At the same time, official development assistance (ODA) globally is also on a downward trend.

IPS UN Bureau