The US is the top country for foreign direct investment according to a recently released report from A.T. Kearney. China comes in second, while the European region is seen as safe harbour for foreign direct investment, with 15 of the top 25 in the region.
In its yearly analysis titled ‘Foreign Direct Investment Confidence Index’*, run since 1998, authors A.T. Kearney examine the overarching trends in foreign direct investment (FDI). In addition to exploring market developments and trends, the consultancy ranks the top 25 countries for FDI inflows, based on among others economic, political and regulatory factors.
Foreign direct investment confidence continues to be high for the US, which has been in the number 1 position for three years running. China comes in second, while confidence in the UK as a strong candidate for FDI has seen the country jump from 8th in 2013 to 3rd this year. Germany too has seen a steady increase in FDI confidence, moving up one position per year to come in 5th, one place behind Canada.
Regionally Europe has set a record for the region with the most countries in the top 25, with 15 European countries seeing high confidence for FDI. This is up considerably on its 2013 standing, when only 30% of the countries in the top 25 were European. For the region as a whole, 36% of respondents – senior executives and managers from 27 countries – are more optimistic than last year, while 21% are more pessimistic. The region has benefitted from several macroeconomic factors driving continued investment. One factor is that the region is seen as a safe harbour for investment in a continually unstable world; the move from austerity to quantitative easing (QE) too is seen by investors as a step in the right direction; and thirdly, there remain more opportunities for foreign investors to come to the table with needed capital.
Most European countries see rises in their standing, with Italy up from 20th to 12th, the Netherlands moving 9 places to 13th while Austria makes its first appearance since 2002 at 21st. Norway and Finland join the top 25 for the first time ever, at 24th and 25th respectively.
In the region the UK is the most attractive port for foreign direct investment, with $37.1 billion in net inflows. It is also the top destination for Chinese investors, with an estimated $5.1 billion in new investments. The UK’s multiyear tax reform initiated in 2007, as well as its buoyant housing market, regarded as the main factors driving interest.
Looking to North America, the region as a whole is seeing high levels of optimism, with 51% more optimistic while only 8% are less optimistic. The US too continues to be seen as a region of high FDI interest. It is showing strong macroeconomic potential, with optimism in the countries shown by 46% of executives, and only 10% saying they are more pessimistic than a year ago.
The Asia Pacific region is too seeing higher levels of optimism, with 42% more optimistic and just 9% less optimistic. Japan particularly is doing well, up from 19th last year to 7th, while South Korea returns to the list at 16th. China at number 2 continues to do well, however, investors are still waiting for news that China successfully moves to a consumer economy. Australia continues to trend downward, moving from 6th position in 2013 to 10th today, with India following a similar downward trajectory – moving from 5th in 2013 to 11th today.
* The 2015 edition of the report is titled ‘‘Connected Risks: Investing in a Divergent World’.