Globalisation
survey by Deloitte, economic activity has strengthened, but CFOs were still not as confident in the autumn of 2021 as they were in the spring. The Deloitte report acknowledges that “automotive is bedevilled by particularly strong supply problems while CFOs in tourism and travel, opening up again after lockdowns, are the most optimistic”. Confidence – and therefore CFO investment habits – still vary from sector to sector, as well as from region to region. The most substantial FDI growth occurred, somewhat unsurprisingly, in developed economies such as the US – boasting an increase of 114% – while formerly key players like India suffered a 26% decrease in investment flow. “Favourable financing conditions, recovery stimulus packages, and overseas investment programmes” are what investors are looking for, is how Dr James Zhan, senior director of investment and enterprise at the United Nations Conference on Trade and Development (UNCTAD), put it in special issue seven of Investment Policy Monitor. If Covid-recovery strategy is a good metric for judging a country’s FDI appeal, there is scope for new destinations to break through on the scene. Bloomberg’s Covid resilience rankings place Colombia, Chile and Malaysia in the top 20, for instance. Not incidentally, all these countries come before the US.
Rising East
One market block squaring up to traditional FDI hotspots is Southeast Asia, benefitting from a booming China as its neighbour. The signing of the Regional Comprehensive Economic Partnership (RCEP) in November 2020, heralding a free trade agreement between 15 economies in the Asian market, acts as an engine for growth across the continent, with FDI increases obvious across most members. The agreement, according to the Association of Southeast Asian Nations’ (ASEAN) report, is indicative of a united belief in globalisation as a route to national development. “Among the developing economies, the ones that have done well are in Southeast Asia,” Pfister emphasises. “What will be interesting is not just restoring FDI to pre-pandemic levels but really ensuring that investments align with countries’ development objectives.” Future investment should be driven, at least in part, by a desire to contribute to activities that can actually create local jobs and support local economies. In its favour, Southeast Asia has large consumer markets and a number of countries that weren’t previously frontrunners in the FDI landscape. As Pfister explains, Thailand, Vietnam, Indonesia and the Philippines are all doing “very good things”. The Philippines, for instance, has undergone a series of successful reforms in recent years, which have greatly improved the local investment climate. As
Finance Director Europe /
www.ns-businesshub.com
Compared to three months ago, how do you feel about the financial prospects for your company?
More optimistic Less optimistic Euro area Countries outside Euro area
60% 40% 20% 0%
-20% -40% -60%
Source: Deliotte European CFO survey, Spring 2018-Autumn 2021 Spring
2018
Autumn 2018
Spring 2019
Autumn 2019
Spring 2020
the OECD investment policy review puts it: “The current macroeconomic situation in the Philippines is favourable, remittances are high, the business process outsource industry is booming, and the new Competition Act will help to make the domestic market more competitive.”
“What will be interesting is not just restoring FDI to pre-pandemic levels but really ensuring that investments align with countries’ development objectives.”
Of course, strong consumer markets are only interesting to investors if people are able to safely work and spend. But here too, Southeast Asian countries did well. When the pandemic struck, for instance, the Vietnamese government successfully kept infections low among its 97 million citizens by implementing a preventative, low-cost public health strategy, as well as by organising effective measures to protect the economy. “When the investment environment is shaky, when there’s low trust in the government, investment flows are going to suffer,” Pfister says, acknowledging how a government’s actions are critical in deciding which direction potential investors will go. More broadly, Pfister explains that another key push factor for FDI is whether a country is integrated in regional and global value chains. Southeast Asian countries once again performed well here, attracting more than $68bn of greenfield investment projects – accounting for more than 40% of all wind and solar plants worldwide. Vietnam was also one of the largest FDI recipients to introduce new investment promotion measures and incentives in 2020, growing its list of
Autumn 2020
Spring 2021
Autumn 2021
77% Economic Times 59
Global FDI was up to an estimated $1.65tn in 2021 compared with 2020, and has already surpassed pre-Covid levels.
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