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Despite Challenges, U.S. Still First in the World for FDI

According to Kearney’s 2022 Foreign Direct Investment Confidence Index (FDICI), the U.S. has retained its top position for investment attractiveness for the tenth consecutive year. The annual survey of global senior executives and investors identifies and ranks the countries that are most likely to attract foreign direct investment over the next three years. In 2021, foreign direct investment (FDI) flow into the U.S. totaled $11 trillion, in part due to the country’s economic recovery (5.8% growth in 2021, from a 3.4% contraction the previous year), as well as the passage of $1.2-trillion infrastructure bill in November 2021.

Globally, FDI flows rebounded in 2021, surpassing pre-COVID-19 pandemic levels in many countries. Germany and Canada placed second and third, respectively, in the FDICI. The strongest FDI numbers were from developed nations, compared to developing economies. In fact, developed countries accounted for 21 of the 25 spots in the FDICI, which likely reflects how investors, rocked by the economic consequences of the pandemic and still nervous, seek lower risk by investing in the most stable business environments.


“We are likely to see a continued shift in FDI into developed markets, with the U.S. chief among them,” says Paul A. Laudicina, founder of the FDICI and Kearney’s Global Business Policy Council. “Investors seek to capitalize on destinations marked by regulatory transparency and stability on the one hand and technological innovation on the other. Robust U.S. economic performance and bi-partisan action on the U.S. infrastructure initiative have helped restore confidence in the country’s longer-term investment attractiveness.”


Key FDI Drivers


According to Glenn Barklie, chief economist at Investment Monitor and head of FDI services at Global Data Media, several key economic drivers have pushed FDI forward in the U.S. and across the globe:


  • Life science sectors performed well, a result of increased R&D focus on developing more effective vaccines and treatments for COVID-19, as well as preparing for the next potential pandemic. “We foresee FDI in the biotech and healthcare sectors growing by 15% and 10%, respectively, in 2022,” stated Barklie.
  • Renewable energy FDI is expected to grow steadily in 2022 after a record year of investments in 2021. Electrification and decarbonization will be high on the agenda of most governments in 2022.
  • Software and IT services are predicted to be the largest FDI sector in terms of project numbers. Much of this growth will be driven by global digitalization, Internet of Things technologies, and AI-enabled manufacturing processes.
  • Growth in electronics FDI will be supported by increased demand for batteries and semiconductors, especially for use in the electric vehicle industry. Although the global chip shortage has impacted several sectors, semiconductor companies are taking steps to increase capacity to ease long lead times.


As of December 2021, “the volume of Mergers & Acquisitions (M&A) deals for 2021 had already exceeded the total for the full year of 2020, an increase of almost 13%,” Barklie indicated. “We expect M&A deals to grow by about twice the rate of greenfield FDI in 2022. Large multinational companies, in particular, are able to flex their muscles by acquiring businesses during times of economic uncertainty.”

"We expect M&A deals to grow by about twice the rate of greenfield FDI in 2022. Large multinational companies, in particular, are able to flex their muscles by acquiring businesses during times of economic uncertainty."
Glenn Barklie, Chief Economist

Investment Monitor

Big Deals for State Economic Development

Competing for FDI is a big deal among states, especially for huge multi-billion-dollar investments that create thousands of new jobs.


For example, in Georgia, FDI accounts for 23% of Georgia’s new job creation each year. The electric vehicle (EV) sector, specifically, is experiencing extraordinary growth. To further attract FDI, Georgia is developing an integrated EV supply chain that will provide vital services for the state’s EV market. One of those services is metal recycling—to fill this need by EV companies, a German company, Aurubis, a recycler of copper, precious metals, and non-ferrous materials, is investing in Georgia  to build a high-tech recycling and secondary smelting facility, which will be the first of its kind in the U.S.


Trade missions and targeted communications about business assets and incentives continue to be effective tools for attracting FDI. Occasionally states collaborate in these efforts. For example, Illinois is hosting the 2022 Midwest U.S.-Japan Association Conference later this year to provide the opportunity for Midwest firms and economic developers across the Midwest to discuss bilateral trade and new investment opportunities with representatives from Japanese firms and trade groups.


Moving Forward


The outlook is bright for FDI in the U.S. this year and into the future.


“Investors seem much more hopeful about the global economy and FDI flows than they did just a year ago,” says Laudicina “They do, however, have concerns that a rise in commodity prices, escalating geopolitical tensions, and persistent inflation were likely in the year ahead. Just a few months into the year, these concerns have come to fruition and been exacerbated by the Russian military actions in Ukraine.”


Perhaps what is most promising is the determination from U.S. businesses


Over the last few years, “businesses have had time to develop new strategies, and take into account new ways of working and the push toward an increasingly digitalized world,” said Barklie “We remain cautiously optimistic that FDI will see another year of growth in 2022.

Some opinions expressed in this article may be those of a contributing author and not necessarily Gray.

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