US remains most attractive country for foreign direct investment
The United States retained the top position for investment attractiveness for the 11th consecutive year in Kearney’s Foreign Direct Investment (FDI) Confidence Index. Now in its 25th year, the FDI Confidence Index surveys global executives to rank markets that are likely to attract the most investment in the next three years.
Kearney, a Chicago-based management consultancy, said this year’s report found cautious optimism in the economy among the surveyed business leaders, who represented $500 million+ revenue companies across 30 countries.
Eighty-two percent plan to increase their FDI in the next three years, up from 76% last year. Eighty-seven percent said FDI would be more important for their corporate profitability and competitiveness in the next three years, up from 83% last year. Nearly two-thirds (63%) remained more optimistic than pessimistic about the global economy, the same level as last year.
Following the US, Canada was the next most attractive investment destination – up from third place in 2022. Japan came in third, rising from fourth in 2022. Germany dropped two spots to fourth, likely reflecting economic and energy challenges stemming from European sanctioning of Russia. The UK maintained the fifth spot in the ranking.
"While investors are generally optimistic about the outlook for FDI, our results this year also reflect a degree of caution," said report co-author Erik Peterson, partner and managing director of Kearney's Global Business Policy Council. "Investors cited a rise in commodity prices, an increase in geopolitical tensions, and rising political instability in emerging markets as among the top risk factors over the next three years."
The FDI Confidence Index for the first time included an exclusive ranking of emerging markets, highlighting those most appealing to investors. China, India, the United Arab Emirates, Qatar, Thailand, and Saudi Arabia held the top six positions; they were also the only emerging markets to make the world rankings.
Brazil, Mexico, and Argentina took the 7th, 8th, and 9th positions, respectively, with Malaysia rounding out the top 10.
"We believe that the inclusion of the emerging market rankings in our FDI Confidence Index will provide business leaders with additional insights into which emerging markets are most appealing to investors," Peterson notes, "The strength of key regions, including Southeast Asia and leading economies in Latin America is evident in these results."
The 2023 index found that execs think globalization will remain the central force in FDI, with two-thirds expecting an increase in globalization in the next three years and under a quarter (23%) expecting a decrease. Those expecting more globalization cite a proliferation in digital trade and services – especially for telecom and IT – during the pandemic, as well as limited trade barriers.
More skeptical parties can point to the increasing aggressiveness of Russia and China in the geopolitical sphere. Though free trade and harmonious relations tend to lift the proverbial boats of all nations, authoritarian regimes may have different goals – such as bloody wars of conquest in Ukraine and Taiwan, for instance. That will mean shifting production of critical components such as silicon and batteries closer to home – something already brought into stark relief by pandemic era supply chain meltdowns.
"While our findings show investors believe in the benefits of globalization and expect it to strengthen, they also anticipate more regionalization over the next three years and that national governments will pursue strategies to increase self-sufficiency," said report co-author Terry Toland, manager at the Global Business Policy Council. "These results suggest an awareness that while globalization will continue, its nature may be shifting – and business leaders will need to prepare accordingly."
