Global FDI Set To Rise Amid Growing Investor Paradoxes

WASHINGTON, May 7, 2019 /PRNewswire/ -- Companies are more likely to invest broadly around the world in the years to come, according to The 2019 A.T. Kearney Foreign Direct Investment (FDI) Confidence Index^® from global strategy and management consulting firm A.T. Kearney. More than 75 percent of investors tell us that FDI is more important now than it had been in recent years. And almost four-fifths say their companies will increase their level of FDI in the next three years.

Investors provide mixed signals on where this investment is likely to go, however, as they appear to be open to investment in a wide array of markets. Regardless of their change in rank, all but two countries among the top 25 markets on the Index enjoy increases this year in their overall scores. More generally, almost all of the 70-plus countries included in this survey of global investors experience gains. These increases represent the most dramatic upward trend in scores in the 20-year history of the Index. 

A paradox arises in the markets on which investors are focused. On the one hand, developed markets account for 22 of the 25 spots on the Index—hitting their highest ever share of positions, even outpacing last year's record. On the other hand, the average score for frontier markets included in the survey increases the most, followed by emerging markets, with developed markets bringing up the rear. This paradox may be explained by the fact that there are far more emerging and frontier markets than there are developed markets, so it is simply more difficult for emerging or frontier markets to break into the top 25 spots on the Index. Or it may be that while developed markets are currently favored, investors have begun the process of examining emerging markets for future investment opportunities.

There is some evidence to support the latter rationale: Even as investors remain focused on FDI opportunities in developed markets, they also see risks rising within these markets. Investors point to political instability in developed markets as the most likely risk this year, followed closely by an economic crisis and a more restrictive business environment. Investors see these risks as far more likely to occur this year than the corresponding risks in emerging markets.

"The paradox inherent in investors' views on developed markets may be due to their greater focus on the risks in these markets because of their strong investment intentions there," says Paul A. Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney's Global Business Policy Council. "At the same time, the risk of populism and protectionism in developed markets may actually be driving investment intentions as companies seek to maintain access to these key markets."

A variety of other paradoxes arise for companies as a result of an increasingly complex global environment. The results of the FDI Confidence Index survey suggest that these paradoxes can be explained by investors prioritizing FDI as a part of business strategies to adapt to the age of multi-localism—a period characterized by the preference for local communities, industries, products, cultures, and customs.

One of the most interesting effects of the age of multi-localism on FDI flows is that it appears to be increasing the importance of cities in driving investment decisions. Strikingly, almost 60 percent of investors do not start their investment destination decision-making process at the country level. Instead, they begin by selecting a region in which to invest or by analyzing city options at a global level. Investors say that megacities and large cities will attract the lion's share of FDI inflows in the coming years, regardless of the type of business activity.

"The concentration of talent, innovation, and economic activity is likely to further favor megacities and large cities over less-populated alternatives," says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. "This is clear in the strong correlation between the top-ranked countries on the FDI Confidence Index and the top-ranked cities on A.T. Kearney's most recent Global Cities Index."

Regional highlights

Americas: Results are mixed for the Americas region. The United States and Canada both rank among the top five markets on the Index for the seventh consecutive year, but Mexico falls significantly in this year's Index rankings (even as its score improves). And although 34 percent of investors are more optimistic about the regional economic outlook this year, this reflects less bullish investor sentiment on the Americas economic outlook than in last year's Index.

Europe: With 14 markets, Europe is once again the region with the highest number of countries appearing on the FDI Confidence Index. Continued investor focus on European markets likely reflects in part the ongoing uncertainty surrounding Brexit, as companies seek to maintain their preferential access to the EU market. But investors are less optimistic about the prospects for several major economies, including the United Kingdom, Italy, France, and Spain.

Asia Pacific: Asia-Pacific markets do well on the 2019 Index. Their share of spots on the Index increases from seven last year to eight this year. And half of the Asia-Pacific markets on the Index rank in the top 10: Japan, China, Australia, and Singapore. Investors are also most optimistic about the regional economic outlook for the Asia Pacific. They are particularly optimistic about the economies of region's developed markets, including Japan, New Zealand, and Singapore.

The 2019 A.T. Kearney FDI Confidence Index®

About A.T. Kearney

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.

To learn more about A.T. Kearney, please visit www.atkearney.com.

About The 2019 A.T. Kearney Foreign Direct Investment Confidence Index^® 

The A.T. Kearney Foreign Direct Investment (FDI) Confidence Index® is an annual survey of global business executives that ranks markets that are likely to attract the most investment in the next three years. In contrast to other backward-looking data on FDI flows, the FDI Confidence Index provides unique forward-looking analysis of the markets investors intend to target for FDI in the coming years. Since the FDI Confidence Index's inception in 1998, the countries ranked on the Index have tracked closely with the top destinations for actual FDI flows in subsequent years.

The 2019 FDI Confidence Index is constructed using primary data from a proprietary survey of 500 senior executives of the world's leading corporations. The survey was conducted in January 2019. Respondents include C-level executives and regional and business leads. All participating companies have annual revenues of $500 million or more. The companies are headquartered in 30 different countries and span all sectors. The selection of these countries was based on UNCTAD data, with the 30 countries represented in the FDI Confidence Index originating more than 90 percent of the global flow of FDI in recent years. Service-sector firms account for about 44 percent of respondents, industrial firms for 33 percent, and IT firms for 18 percent.

The Index is calculated as a weighted average of the number of high, medium, and low responses to questions on the likelihood of making a direct investment in a market over the next three years. Index values are based on responses only from companies headquartered in foreign markets. For example, the Index value for the United States was calculated without responses from US-headquartered investors. Higher Index values indicate more attractive investment targets.

FDI flow figures presented in this report are the latest statistics available from UNCTAD, and all 2018 figures are estimates. The data on specific FDI deal values is from Dealogic unless otherwise noted. All economic growth figures presented in the report are the latest estimates and forecasts available from the International Monetary Fund unless otherwise noted. Other secondary sources include investment promotion agencies, central banks, ministries of finance and trade, relevant news media, and other major data sources.

For past editions of the FDI Confidence Index, please go to www.atkearney.com/foreign-direct-investment-confidence-index.

For more information contact:
Erin Weiss ([email protected])

SOURCE A.T. Kearney

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