The largest economy in the world is the one that attracts the most foreign direct investment (FDI). This is what emerges from the annual survey conducted by the IMF, which collects data from 112 countries, published on Wednesday 7 December.
In one year, transatlantic FDI increased by 11.3% (+506 billion dollars) compared to 2020, to reach a total of 4.977 billion dollars. This puts the US well ahead of the Netherlands ($4.331B) and China ex-Hong Kong ($3.578B), who slip into third place. But adding Hong Kong, the Middle Kingdom remains in first place, with a total of $6.891 billion.
The United States at the peak of competitiveness
American attractiveness could be further exacerbated in 2023 thanks to the IRA, Joe Biden’s anti-inflation plan (for Inflation Reduction Act).
To restart the made in America” in key sectors (electric cars, batteries, renewable energy), the White House is swinging almost 420 billion euros in subsidies – available since January 2023 – to manufacturers who set up their factories on American soil. An important asset to the advantage of its competitiveness, which Europeans do not see particularly favorably.
It will also enter into force in a context of rising energy costs in Europe. These heavy energy bills weigh on industrial production, which is slowing. Some factories are even forced to close. Particularly in the German chemical industry, a gas-intensive sector.
On Tuesday, during a morning of debates on the energy crisis, the CEO of Engie Jean-Pierre Clamadieu confirmed a decline “very high gas consumption, about 30%” in large industrial groups. What does it mean “replacement (use of less expensive energy)” but, above all, a “drop in production”.
A situation that the United States does not know, where energy is sold five to six times less than in Europe. Another boon for American soil that could encourage investors to relocate their production to its land.
FDI “crosses” small countries
Globally, FDI increased by 7.1%, if we consider the increases of individual national currencies. The increase is only 2.3% recorded in dollars, due to the strengthening of the greenback on the foreign exchange market.
The survey also highlights the presence of several small countries in the “Top 10”, including Luxembourg, Singapore, Ireland and Hong Kong. “The apparent disconnect between data on FDI and the real economy derives from the fact that FDI are above all financial statistics, which also take into account the financial flows between entities having the same owner, direct or indirect”, explained the authors of the note, Jannick Damgaard and Carlos Sanchez-Munoz.
FDI specifically includes the flow of funds that pass through a country before reaching their final destination, “often for tax or regulatory reasons”. What can so “to inflate greatly” FDI within the affected economy.
The study carried out therefore highlights the importance of offshore financial centers and their consequences in terms of FDI, “which has sharply increased in the years since the 2008 financial crisis”, although their share has significantly decreased over the past five years.
For 2022, however, the forecasts are lower. In a report released in June, UNCTAD, the United Nations body responsible for trade and development, indicated that FDI “should they experience a downward trajectory, at best remain stable.”
At issue: the war in Ukraine that has changed “spectacularly” the global environment for international investment. “Investor uncertainty and risk aversion could put severe downward pressure on global FDI this year,” warned the organization
(with AFP)
