The relationship between FDI and emerging markets (EMs) used to be one-way traffic. Multinationals from rich countries invested into EMs in search of high returns and new markets, transferring technology, managerial knowhow and expertise in the process. Very little capital flowed the other way.

Now the 10 emerging markets in the G20 (G20-EMs) — Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey — are flipping the script. Their collective influence over global trade, investment and supply chains has massively grown. Since 2000, the G20-EMs contribution to global gross domestic product has more than doubled to 30.3% in 2023, according to IMF figures.

In FDI terms, these G20-EMs are slowly but surely increasing their role as sources of global capital. The share of global greenfield FDI projects originating from G20-EMs rose to an all-time-high of 9.5% last year, up from 6.7% in 2003, according to fDi Markets. Total capital pledges by G20-EMs based companies also topped $240bn in 2023, accounting for 14.9% of global FDI capital expenditure, their largest share since it was 15.9% in 2017.

Most of these G20-EMs have been accumulating large current account surpluses through trade of manufactured goods (China, for example) or natural resources (Saudi Arabia, among others). Over the years, that surplus capital has gradually started seeking profits and opportunities overseas.

“These economies are more and more important,” says Andrea Presbitero, an economist at the IMF, who co-wrote an analysis on growing integration and spillovers from the G20-EMs. “They are converging, maturing and getting more similar to advanced economies.”

China, the largest developing economy, has been the driving force of outward G20-EMs FDI. It made up more than 30% of annual outbound FDI projects from G20-EMs in the previous decade before 2019. The G20-EMs group, excluding China, were the source of 5.7% of global FDI projects in 2023.

“China is taking a leading investor role in its sphere of influence,” says Bruno Casella, an economist at Unctad.

China has matured as an FDI source market. Since 2022, Chinese firms have announced far more greenfield investments than cross-border mergers and acquisitions, building out their own facilities abroad amid heightened scrutiny of their M&A and concerns about industrial overcapacity and slowing economic growth at home in China.

Saudi Arabia has grown as an FDI source due in large part to the PIF, its sovereign wealth fund, which has increasingly used vast petrodollar reserves to gain global influence and fuel its domestic diversification agenda.

India’s rise as an FDI source market follows global expansions by tech giants such as Infosys and industrial conglomerates like Tata and Mahindra. Over 550 greenfield FDI projects were announced by Indian companies in 2023, more than any year on record, according to fDi Markets.

Despite their growing role as sources of global FDI, G20-EMs FDI remains far behind the levels of investment generated by western multinationals. Most greenfield FDI projects in 2023 still originated from companies based in the US (31.5%) and Western Europe (38.6%), according to fDi Markets.

“The outward side of FDI is still very sticky,” notes Mr Casella of Unctad. Nonetheless, the total outward stock of FDI from the G20-EMs, which includes greenfield FDI and cross-border M&A, has still grown to reach $5.1tn in 2022, an 11-fold increase from 2003.

Amid trade tensions with western countries, the G20-EMs have become even more prominent investors in 151 emerging markets and developing countries (EMDEs). A quarter of all capital pledges and 14% of FDI projects in EMDEs in 2023 came from companies based in the G20-EMs, according to fDi Markets. The greater integration of the G20-EMs with the global economy will have profound implications for FDI promotion today and in the future.