Nearly Three-Quarters of Countries Ranked in Top 25 are Developed Economies; U.S. and China Hold Top Two Positions for Third Straight Year. United Kingdom rises to #3 to lead Europe; Canada comes in #4Asian Investors, the Most Bullish, Emphasize Frontier Markets.
Two-thirds of companies plan to return to pre-financial crisis levels of foreign direct investment (FDI) by 2016, according to the 2015 FDI Confidence Index® from global strategy and management consulting firm A.T. Kearney. The Index’s 15th edition, Connected Risks: Investing in a Divergent World, finds that business leaders are increasingly seeking global opportunities for growth.
“Investors desperately want to put the last financial crisis in the rearview mirror, and they are setting their sights on new destinations for their capital,” says Paul Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney’s Global Business Policy Council. “While market volatility and economic uncertainties may create periodic speed bumps in our interconnected world, these findings point to reinvigorated cross-border investment. With the right strategic insight and analysis, global opportunities abound for those who know where to look.”
The FDI Confidence Index offers an in-depth view of forward-looking global investment sentiment from senior executives. Since its inception in 1998, the study has consistently pointed toward top choices globally for foreign direct investment, with FDI destinations ranked in the Index receiving the majority of global FDI inflows about a year after the survey results are released.
In this year’s Index, 66 percent of companies plan to return to their pre-financial crisis levels of foreign direct investment (FDI) by 2016, with Asian investors revealing the strongest commitment to restoring pre-recession levels. Nearly three-fourths of countries ranked in the top 25 are from developed economies, as investors see new opportunities as safe ground.
For the third year in a row, the United States and China are ranked first and second as target countries for investment, while the United Kingdom continues its three-year rise to claim third position. The United States leads all countries when it comes to investors’ positive macroeconomic outlook, with 46 percent of those surveyed more optimistic in their outlook for the U.S. economy than they were a year ago, and 44 percent expecting GDP growth of about 3.6 percent over the next three years. The global executives indicate that even continued gridlock in Washington is unlikely to diminish their interest in investing in the United States.
Asian investors are particularly optimistic about the growth outlook in the Americas, and overall, they are less concerned than others about geopolitical instability and the regulatory environment of destination countries, expressing the strongest interest in frontier markets. More than 80 percent of Asian investors say they are currently interested in maintaining, commencing, or increasing investments in these countries.
“With their focus on developed economies large and small, investors across the world are looking for a known and secure port of call,” says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “The 2015 FDI Confidence Index is an excellent window into the thinking of global business executives who are managing risk in a year of growing divergence in monetary policy between the world’s major economies.”
Each region’s findings tell compelling, connected stories seen through the lens of the FDI Confidence Index, with many of the winners reaching newfound stability after navigating post-recession turbulence.
Americas: The United States maintains its top ranking for the third straight year. The U.S. administration has repeatedly cited the last two years’ studies as a proof point of the resurgence of the domestic economy. Canada remains in the top five, holding onto 4th place. Brazil maintains the highest ranking in Latin America, ranking 6th overall, although it sags from its third place ranking in 2013. Despite its sluggish economic growth, investors remain attracted by Brazil’s large domestic market, growing middle class, and natural resource base. Mexico gains three spots to rank 9th as the new reform agenda continues to improve the country’s business climate. Significant energy sector reforms are planned for Mexico in 2015 despite low oil prices.
Europe: This region has unprecedented executive interest this year, with 15 countries ranked in the top 25. Fueled in part by the European Central Bank’s decision to move from austerity to stimulus through quantitative easing, the region’s 60 percent share of the Index is a sharp rise from 40 percent in 2014. Countries moving up the Index include third-ranked United Kingdom, which continues a three-year rise in the rankings, and fifth-ranked Germany, a source of eurozone stability and sound economics. The Netherlands climbs nine spots to 13th place, behind efforts to increase foreign investment under the brand “Invest in Holland” and to build Europe’s best-connected and largest start-up ecosystem through its “StartupDelta” program. France moves up two spots to 8th as the government implemented tax incentives, simplified administrative procedures, and eased restrictions on investment activities.
Asia: China ranks second as respondents watch for GDP growth to reach 7.0 percent, and for continued signs of its successful transition to a consumption-led economy. Japan, following its “lost decades” and economic stagflation, surges to 7th from last year’s 19th position. Its impressive 12-place gain may be a sign that the third arrow of the Abe administration’s growth strategy will make the country more attractive for FDI flows. Asian economies, which attract more than 40 percent of global foreign direct investment, continue to show growth driven by domestic consumer markets. Tenth-place Australia recently finished negotiations for three landmark trade agreements, including bilateral trade deals with China, Korea and Japan. India is 11th and may see future rankings rise quickly if the “Modi magic” of the current government succeeds in implementing plans to boost economic growth and modernize the bureaucracy. This includes the “Make in India” initiative, which aims to improve the ease of doing business in India, and remove or relax foreign equity caps in several areas.
The 2015 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. For more information, please visit www.atkearney.com.
About the 2015 Foreign Direct Investment Confidence Index®
The FDI Confidence Index® is constructed using primary data from a proprietary survey administered to senior executives of the world’s leading corporations. Respondents include C-level executives and regional and business heads. The participating companies represent 27 countries and span all industry sectors. All companies in the survey report global revenue of more than $500 million, and nearly one-half report more than $1 billion. To reflect the increasing influence of developing markets in FDI, this year more than one-third of respondent companies were headquartered in developing countries. The survey was conducted in January 2015.
The Index is calculated as a weighted average of the number of responses indicating high, medium, and low likelihood of direct investment in a market over the next three years. Index values are based on non-source-country responses. For example, the Index value for the United States was calculated without responses from U.S.-based corporate investors. Higher Index values indicate more attractive investment targets. The sample of countries included in the survey account for approximately 90 percent of FDI inflows.
FDI flow figures are the latest statistics available from the United Nations Conference on Trade and Development (UNCTAD). Other secondary sources include investment promotion agencies, central banks, ministries of finance and trade, and other major data sources
For past editions of the FDICI, please visit www.atkearney.com/gbpc/foreign-direct-investment-confidence-index.