April 07, 2021, 12:40 p.m.
Zurich – The COVID-19 pandemic, the election of Donald Trump and Brexit have left deep marks on foreign direct investment (FDI). The new confidence index for direct investments from the global management consultancy Kearney shows how high the uncertainty is. The result: Many investors play it safe, turn their backs on China (minus 4 places) and rely on safe (investment) havens such as the USA, Canada and Germany. In the ranking, Switzerland is in the top 10.
Pandemic, trade disputes, data nationalism – international investors are feeling insecure and expect a slow recovery in investment flows. The FDI Trust Index 2021 of the global management consultancy Kearney, which is based on a survey of executives in top global companies in January and February, shows the strong uncertainty one year after the start of the pandemic. “Only 57 percent are optimistic about the global economy and investment prospects over the next three years. Before and at the beginning of the 2020 pandemic, this value was 72 percent, ”said Dr. Martin Eisenhut, Partner and Managing Director Germany, Austria, Switzerland at Kearney.
Industrialized countries are preferred
Almost all countries recorded a massive decline in foreign investment. The lion’s share of the investments made goes to the industrialized countries. The USA, Canada and Germany continue to lead. On the other hand, Brexit is less of a headache for investors. Great Britain is becoming more attractive again (place 4 / +2). Italy (place 8 / + 1) and Spain (place 9, + 2), which were particularly hard hit by the pandemic, also made up places. As one of the few countries, Spain even recorded an increase in the inflow of funds. “On the one hand, established markets offer managers more security and stability. On the other hand, investors prefer countries with good infrastructure, strong governance, technological innovation and macroeconomic stability – all natural strengths of industrialized countries, ”adds Eisenhut.
Weak emerging markets
This also explains the poor performance of the emerging countries in the index, as only China, the United Arab Emirates and Brazil made it into the ranking. In the past, China always took top positions. The fear of an escalation of the trade conflict between the USA and China, as well as a general rethinking in the design of international supply chains explain the decline of China by four places to 12th place.In addition, investors in emerging markets fear an uneven distribution of vaccines, which is both attractive additionally reduced for logistical and economic reasons.
Switzerland scores as a technology and research location
The pandemic caused the worst economic downturn in Switzerland for 45 years. However, the slump was less severe than in many other European countries. Foreign investments fell massively from -22 billion to -88 billion US dollars. According to UNCTAD, this was partly due to the sale of large blocks of shares. On the other hand, investments were preferred in pharmaceuticals, technology and production. The pharmaceutical company Retrophin bought the Swiss company Orphan Technologies for 90 million US dollars.
As in the previous year, the Alpine republic is in 10th place in the ranking. Investors continue to value Switzerland as a technology and research location and for its excellent infrastructure and governance. The rejection of the limitation initiative provided relief. This would have jeopardized the free movement of persons with the EU. Monetary policy is also in focus. The Swiss central bank braced itself massively against the appreciation of the franc. The US Treasury Department branded Switzerland as a “currency manipulator” for intervening in the foreign exchange market and criticized the unfair competition. Therefore, Switzerland is still under observation here.
Fear of data nationalism
For 65 percent of the companies surveyed, up to 30 percent of sales depend on data processing. This growing dependency also has an impact on foreign investment decisions. States are increasingly intervening in data processing.
The European General Data Protection Regulation (GDPR) has already found numerous imitators. New data protection laws are due to come into force in Thailand soon, in Brazil in August and in the US state of California in 2023. But it’s not just data protection laws and rising regulatory costs that pose new challenges for companies. More and more countries are also restricting the “free flow of data” by means of cybersecurity laws. “Foreign investors fear increasing data nationalism. The pandemic has intensified the trend that many countries are relying on technological sovereignty. 71 percent of investors already fear political interference that will also affect their company, ”explains Eisenhut.
The pandemic is the greatest risk
“Apart from these findings, the greatest risk for international investors is still the pandemic itself,” said Eisenhut. «Overcoming COVID-19 will be key to recovering the global economy and improving foreign direct investment. Economic growth will largely be determined by the duration of the global pandemic, the effectiveness of economic measures and the success of vaccination campaigns. ” Eisenhut: “Despite persistent macroeconomic challenges, investors continue to see foreign direct investment over the next three years as crucial for the profitability and competitiveness of companies. And even with investors becoming more cautious this year, the 2020 slump in FDI is unlikely to become an integral part of the global economy. ” (Kearney / mc / pg)