The global FDI flows won’t turn to its historical peak before 2028, the international consultancy firm said, based on a survey among executives of global companies with more than USD 500m turnover.
The global foreign direct investment (FDI) flows, which slowed down due to the pandemic,are projected to return the historical peak only in 2028, according to the 2021 Foreign Direct Investment Confidence Index report, prepared by the international consultancy firm Kearney. The historical peak was observed in 2016.
In case the global economy recovers slower than expected the return to the 2016 peak will last 10 years, the Kearney report said. Only 57% of global company executives participated in the research expressed optimism about the global economic outlook for the next three years, down from 72% before the pandemic.
81% of global business executives considered FDI is the basic way to increase profitability despite the adverse impact of the pandemic. This rate was 84% in the last year’s survey.
“The global economy will rebound this year to 5.6% growth and global output will exceed its pre-pandemic level in the second quarter of 2021, compared to the fourth quarter of 2019,” Kearney said.
Importance of digital infrastructure increases
More usage of digital technologies due to the COVID-19 increases importance of data regulations, according to the report. “65% of respondents said 11-30% of their turnover is generated through data,” the report revealed. The report also stated that many countries from European Union states to Turkey enacted new laws on data usage, while new legislations increase investment costs.
Data protection regulations and necessary operational costs for data protection are considered among basic determinants for investment decisions by 41% and 40% of global companies, respectively. Meanwhile, they particularly suffer from strict rules of the Chinese cyber security law introduced two years ago.
Compliance with national data regulations led an additional cost of USD 1m and above in 46% of the companies, the report said. “41% of companies expect data costs will increase while 37% expect data costs will decrease over the next three years.”
Commodity prices on the radar
Increase in commodity prices is another factor affecting investment decisions of global companies. Rapid recovery expectations in the global economy based on vaccination led raid increase in commodity prices in previous months. Accordingly, 32% of global business executives think that commodity prices will continue to rise this year.
Taxation took the lead among the factors affecting FDI at most followed by technology and innovation infrastructure, according to the report.
R&D capabilities jumped four places and ranked third among the factors attracting investors at most.
R&D supports increase attraction among foreign investors: Okutur
Increase in weight of regulations on R&D and data stemmed from increasing role of technology is shaping the global economy, according to Onur Okutur, Managing Partner of Kearney Turkey. “Strong R&D supports provided under the leadership of the Scientific and Technological Research Council of Turkey (TUBITAK) in the country increases attraction of global investors,” said Okutur, stressing that simplification of R&D supports will further improve investment environment. He also emphasized that easily applicable and affordable regulations will increase interest of foreign direct investors in the country.
Here are factors affecting FDI flows at most in accordance with Kearney’s 2021 Foreign Direct Investment Confidence Index report:
- Tax rates and ease of tax payments: 16%
- Technological and innovation capabilities: 15%
- R&D capabilities: 13%
- Efficiency of legal processes: 13%
- Transparency of legal regulations and lack of corruption: 13%
- Protection of investor and property rights: 12%
- Government incentives for investors: 12%
- Labor cost: 11%
- Liberality and ease of capital movements: 11%
- General security environment: 11%
- Market size: 10%
- Quality of digital infrastructure: 10%
- Country’s participation in trade agreements: 9%
- Availability of financial capital in domestic market: 8%
- Skill level of labor pool: 8%
- Quality of physical infrastructure: 8%
- Domestic economic performance: 8%
- Availability of raw material and other inputs: 6%
- Availability of land/real estate: 6%