BrazilAsia Pacific grows attractiveness in Kearney’s global FDI Index
Despite economic headwinds, a majority of investors worldwide expect to increase their foreign direct investment (FDI) in the next three years, with Asia Pacific increasing its standing as a global hotspot.
Now in its 25th edition, the annual Foreign Direct Investment Confidence Index by management consultancy Kearney sheds light on investor sentiment, and how countries stack up in terms of foreign direct investment attractiveness.
According to the report, global FDI inflows rose slightly last year, from an estimated $2.07 trillion in 2021 to $2.13 trillion in 2022. That number is expected to grow further this year, with 82% of respondents – senior executives in 25 countries – stating they are planning to increase their FDI in the next three years – up marginally from 76% last year.
Further, 87% cited FDI as more important for their competitiveness in the next three years, up slightly from 83% last year.
The more optimistic investment outlook comes despite a slightly deteriorated outlook on the global economy. Vis a vis the year previous, nearly two-thirds of investors (63%) remained more optimistic than pessimistic about the global economy (precisely the same level as in 2022), however the level of pessimism ticked up slightly from 32% to 35%.
Commodity price rises, heightened geopolitical tensions, and political instability in developing economies are among the main hazards that investors are predicting for this year. These anticipated changes can be linked to a number of variables, including the ongoing conflict between Russia and Ukraine and the pandemic’s ongoing effects.
Top countries for FDI
Kearney’s study shows that investors continue to rank developed markets as the top destinations for foreign direct investments, with the United States, Canada and Japan taking the top three slots. Of the 25 most attractive countries, 19 are developed markets.
Amid the dominance of developed markets, two regions stand out: the Middle East and Asia Pacific, with the latter now holding eight spots in the top 25.
In Asia Pacific (APAC), over half of investors surveyed (53%) expressed more optimism about the Asia Pacific economy than they did last year, a slight increase from 46%. Meanwhile, more than 9 out of 10 APAC-based investors consider FDI to be more crucial for their corporate profitability and competitiveness in the next three years.
The region’s top performing nations are Japan (#3), China (#7), Singapore (#9), Australia (#10), New Zealand (#15), India (#16), South Korea (#19), and Thailand (#23). Notably, Singapore improved from 18th to 9th place, Japan advanced from 4th to 3rd and China advanced three positions to 7th. Thailand and India are new entrants in the top 25.
“Despite a volatile global economy, we are encouraged by APAC’s positive performance on the Index and the optimism investors have in the region,” said Arjun Sethi, APAC Regional Head and Chairman at Kearney.
“Such optimism mirrors the region’s strong post-pandemic recovery, relatively high near-term growth prospects, and robust dynamism. These indicate the economic resilience and strength possessed by the region, as businesses adapt to evolving global challenges” he added.
In a sub-ranking listing the top performing emerging market countries, a number of other Southeast Asian nations also feature, including Malaysia, Indonesia, the Philippines, and Vietnam.
Much of the attractiveness of these countries is tied to continued economic growth, as well as improving landscapes for doing business. Kearney’s researchers also note that countries outside of China are benefitting from a diversification strategy.
Due to China’s supply chain interruptions during the Covid-19 outbreak and increasing geopolitical tensions, companies and investors worldwide are currently reevaluating choices on where to offshore their production processes, with the likes of Thailand, India and Malaysia coming out on top of a recent benchmark of location attractiveness.
“Investors are pursuing strategies to diversify their regional investments to boost supply chain resilience in a period of heightened geopolitical uncertainty,” said Sethi.
The appetite for potentially switching country-based operations is highest among US corporates, while 33% of European investors state geopolitical tensions and the trade war between the United States and China is a key driver of exploring a different offshoring strategy.
Globalization
Kearney’s report suggests that globalization is and will remain a central force in foreign direct investment in the years ahead. A strong majority of respondents (66%) anticipate an increase in globalization over the next three years, with only 23 percent anticipating a decrease.
Those expecting an expansion of globalization point to a combination of connected digital infrastructure alongside growing trade opportunities and limited trade barriers as the primary driving forces.
In Asia Pacific, a large majority of investors (73%) anticipate an increase in globalization over the next three years, which is higher than the global average of 66%.
However, Kearney’s report also notes that there are risks on the horizon that may slow down the process of globalization, including US-China geopolitical tensions.
Regionalization is another trend. According to the survey, 80% of investors in Asia Pacific believe that regionalization will increase over the next three years, indicating the need for governments to become more resilient by increasing their level of self-sufficiency.
