Globalisation
Another important factor to note here is the predominance of intra-regional flows across East and South East Asia, which compounded the economic impacts of governments’ health measures. “They’ve always had high intra-regional investment, with Singaporeans investing in Thailand and Thais investing in Singapore, for example,” explains Pfister. “So, with these economies, FDI is cyclical; if these economies are doing okay, FDI is going to keep going.” Indeed, the WIR highlights more than $3bn of Thai investment in Vietnamese energy projects in 2020. There’s a clear comparison there with the EU. But whereas Europe is still dealing with the impacts of Brexit, many Asian countries are strengthening their trading partnerships. “The UK was always a big player, so that’s taken a crack at the EU figures,” says Pfister. “But European countries also suffered massively from the Covid crisis. FDI reflects economic activity, and hence their FDI flows fell.”
Cold capital
Concerned about Chinese competition and involvement in their economies, European countries, like almost all the planet’s most developed nations, have also spent recent years tightening their regulation of FDI. By ramping up protectionism while productivity stagnated, however, Pfister fears they exposed a vulnerability that worsened their experience of the crisis. “If you look at the two years before Covid, from 2017 to 2019, we saw that the majority of the largest economies had already put in place national security measures to fend off any potential risk associated with foreign takeovers,” he explains. “We were reaching a point where we were saying,
‘Okay, something has to happen’. When you already have slowing market forces, a difficult environment for FDI and protectionist policies on the rise, and then you have a crisis – of course that’s going to contribute to a massive drop, but it basically sharpened those pre-existing challenges.” By contrast, Vietnam was one of the largest FDI recipients to introduce new investment promotion measures and incentives in 2020, expanding the list of business lines eligible for investment incentives and allowing certain disputes between the state and foreign investors to be taken to international arbitration. In line with the regional trend, it also continued to liberalise its foreign investment framework – hoping, perhaps, to capitalise on democratic governments’ attempts to convince companies to divest from China. Of course, as we have seen, that hasn’t exactly gone to plan – China was the largest economy to liberalise its investment framework in 2020, and its FDI inflows grew more than any other East or South East Asian nation. According to the country’s
Finance Director Europe /
www.ns-businesshub.com
ministry of commerce, FDI has kept rising this year, too, totalling 33.9% more in the first half of 2021 than it did in the same period in 2020. “One thing we have not seen yet, which was expected by many experts and analysts, is any significant ‘reshoring’ phenomenon,” says Pfister. “That hasn’t happened, and it proves the point that investment goes where there’s a market.”
From this perspective, capital is a little less cowardly. At the very least, it trusts itself to optimise value. “Companies don’t follow Cold War geopolitics; companies follow markets,” Pfister stresses. “A lot of the reshoring discourse was a political discourse; less so an economic one. It fits in the narrative of increasing restrictive policies, nationalistic policies, protectionist policies. But those were political narratives, whereas companies were always looking at optimising their value chains, knowing very well where they can produce better and where the end market is larger.”
Vaccine economics
The WIR forecasts continued growth in FDI across developing Asia in the near-to-medium term, but it’s likely that global FDI flows will begin to rebalance over the next two years. Crises tend to align political and economic concerns. When the WIR was published in May, an astounding 90% of recovery spending was confined to developed countries. Those trillions of public dollars will exert a gravitational pull on MNEs, as can already be seen in the relative resilience of international project finance deals in developed countries – which actually rose in number during 2020 – and the record-breaking $48bn invested in greenfield information and communication technology projects in developed economies. That includes a $12bn investment by the Taiwanese company TSMC in US chip factories. Similarly, thanks to their speedy vaccine rollouts, developed countries can now restart their economies and open their borders with a degree of confidence that nations reliant on testing, tracing and lockdowns can’t match. Perhaps more important, however, is the impact of the pandemic on global productivity – as evidenced by the sudden burst of innovation and investment in the biomedical and ICT sectors. “Some sort of creative destruction will result from this,” says Pfister. “Productivity was stagnant for years, and we’re likely to see an increase that’s due on the one hand to improved processes and the increased use of digital tools, but also to labour shortages. Companies will not be able to hire like they would want, so they will have to innovate. We as economists will be quite excited to see what that brings in terms of job creation, better jobs, and helping pull people out of poverty.” It’s not only Asian countries that should be better prepared next time. ●
90%
The percentage proportion of recovery spending planned in
developed countries. World Investment Report 2021
33.9% RT 35
The percentage rise of FDI in China, in the first half of 2021 over the same period in 2020.
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