A.T. Kearney, one of the world’s leading management consulting companies, has released the recent Foreign Direct Investment Confidence Index, which tracks the impact of likely political, economic and regulatory changes on the foreign direct investment intentions and preferences of the leaders of top companies around the world.
The report states that several emerging markets remain attractive to foreign investors. China, India and Brazil are in the top five of the 2010 Foreign Direct Investment (FDI) Confidence Index, while emerging markets with large consumer bases, such as Indonesia and Vietnam, also rank highly.
In Asia, investors are confident about China and India, the 1st- and 3rd-ranked countries, respectively, but the more advanced economies, Japan and South Korea, both fell out of the Index for the first time since its inception in 1998. Meanwhile, Brazil continues to benefit from strong demand for major commodities such as iron ore and soybeans and sound economic management, and the largest economy in Latin America now ranks as the 4th most attractive destination for FDI. Meanwhile, Mexico faces a number of domestic economic problems, including declining oil production and the loss of manufacturing jobs to Asia, yet it rises to 8th in the new Index as it remains a top destination for light industry and American companies seeking lower costs. In Europe, Poland and Romania move up 6th and 16th, respectively, while Russia slips to 18th amid concerns that its pre-crisis boom times are now over.
At the same time, the developed world has benefited as investors seek safety during the worst recession since World War II. In particular, the United States, which moves from 3rd to 2nd place in the Index. Overall, the United States’ role as an investment safe harbour is clear, as the bullish ranking suggests. Other developed nations attracting investors during the downturn include Germany, which rises from 10th to 5th place, and France, which retains its position this year at 13th. Canada and Australia, whose abundance of resources have helped them weather the recession, move into the top 10th. In contrast, the United Kingdom has faced the erosion of confidence, due to the severity of the financial crisis and increased fiscal deficits, and falls to 10th place from 4th in 2007.
The Middle East also fares well, as the United Arab Emirates and other Gulf states are in the top 15, and Egypt emerges as a rising star.
Global FDI flows fell amid the deep recession that began in 2008. According to the United Nations Conference on Trade and Development (UNCTAD), global FDI inflows fell from an all-time high of US$1.98 trillion in 2007 to US$1.7 trillion in 2008, and preliminary data for 2009 suggests that overall flows have fallen to about US$1 trillion. UNCTAD predicts a slow recovering for 2010 and 2011. A.T. Kearney’s findings show that many investors will bide their time until 2011, when most believe recovery will finally be complete and capacity can be added for a new period of economic expansion. Almost three-quarter of investors surveyed believe that the Asia-Pacific region will lead the world out of this recession.
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