Global Business Executives are Bullish Despite Concerns About Politics; Where are They Investing?

This year's edition of the Index, entitled Glass Half Full, finds that while global business executives are increasingly worried about the negative effects of politics and geopolitics, they are nevertheless more bullish on the global economy and FDI prospects. For the third year in a row, global business executives see an increase in geopolitical tensions as the highest risk in the external environment. Investors' concerns about geopolitics and rising protectionism are in fact likely driving some of their motivation to increase FDI. In an environment of slowing global trade growth and increasing barriers to trade, FDI may offer a localization strategy for investors in key markets.

The United States again tops the FDI Confidence Index, holding its first-place position for the fifth year in a row. Investors are also more bullish on the US economic outlook than any other economy on the Index. Germany rises to the second position in the FDI Confidence Index, followed by China in third place. The United Kingdom and Canada round out the top five spots. See the full report at www.atkearney.com/FDICI.

"Investors told us that they are optimistic about the future of the global economy, global uncertainties notwithstanding, and see many quality opportunities for FDI worldwide," says Paul A. Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney's Global Business Policy Council. "For the first time since the Global Financial Crisis, we saw a rise in the number of emerging markets on the Index. This could be an inflection point after years of increasing dominance by developed markets on the FDI Confidence Index."

Despite this slight diversification in investment destinations, the United States maintains the top spot. This is likely due to the sheer size of the US market and the overwhelmingly positive investor outlook for the American economy this year. Almost half of investors are more optimistic about the outlook for the US economy than they were last year. With the UN Conference on Trade and Development (UNCTAD) estimating that FDI inflows increased 11 percent year-on-year to $385 billion in 2016, the United States remains by far the largest recipient of FDI in the world.

However, investors this year are more focused on regulatory and governance factors in determining where to invest, and concerns are rising about the wild card of adverse regulatory changes in developed markets. This means that investors will likely monitor closely, policy developments in Washington. While UNCTAD warns that some of the apparent protectionist policies advocated by President Trump threaten to stem investment flows, it is possible that President Trump's "buy American" and "make American" rhetoric might be motivating some investors to enhance their position in the US market. In addition, the prospect of increased infrastructure spending and lower corporate tax rates could also encourage continued strong FDI inflows in the coming years.

"The continued appeal of investing in the United States shows that global investors make decisions primarily based on economic fundamentals because FDI is a long-term commitment," says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. "And in times of global uncertainty, such as we see today, the perceived safe haven status of the United States remains appealing."

Regional highlights

Americas: Investors consistently point to four markets in the Americas region as particularly attractive investment destinations: The United States ranks 1st in the Index for the fifth consecutive year. Canada remains in the top five, falling two spots to rank 5th this year. Brazil ranks 16th, falling four spots from last year. Mexico rises one spot this year to rank 17th. Global investors are very optimistic about the economic outlook in the Americas. Over 40% of investors are more optimistic about the regional economic outlook this year than they were last year. This optimism seems to be almost entirely driven by investors' bullishness on the US and Canadian economies. In 2016, North America attracted more FDI inflows than any other region in the world, according to UNCTAD estimates, while FDI inflows to Latin America fell slightly.

Europe: Europe has the largest number (11) of top ranked countries on the 2017 Index—but this is a decline from the 13 European markets that were on the Index last year. Germany rises to 2nd place in the Index, while the United Kingdom gains one spot to rank 4th. France rises one spot to 7th, Spain rises two spots to 11th, and Switzerland falls one spot to 12th. Sweden makes the largest gain to rank 15th, while Italy (13th) and Ireland (20th) both rise three spots. The Netherlands holds steady at 14th, while Belgium (22nd) and Austria (24th) round out the European markets..  European economies continued to attract significant amounts of FDI last year. The European Union attracted the third-highest level of regional FDI inflows according to UNCTAD estimates.

Asia Pacific: Of all regions, global investors are the most optimistic about the economic outlook in Asia Pacific. Investors point to eight Asia Pacific markets as particularly attractive investment destinations. China ranks 3rd in the Index, continuing its consistent streak of appearing in the top three preferred Index destinations. Japan maintains its 6th place spot, while India continues its rise, improving one place to rank 8th this year. Australia (9^th) and Singapore (10th) round out the top ten. South Korea falls one place to 18th, while Thailand rises two spots to rank 19th. New Zealand appears on the Index for the first time, ranking 23rd. Asia Pacific economies continue to attract significant amounts of FDI. Emerging and frontier markets in Asia attracted one of the highest levels of FDI inflows of any region in the world according to UNCTAD estimates, while FDI inflows to Australia and Japan jumped significantly last year.

Middle East and Africa: Despite some continued economic volatility due to low global commodity prices, the Middle East and Africa make a comeback on the Index after a two-year absence. The United Arab Emirates ranks 21st on the Index, with South Africa rounding out the Index in the 25th spot. This could signal a desire by global investors to diversify the location of the FDI after several years of a "flight to safety" trend.

The 2017 A.T. Kearney FDI Confidence Index®

About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.

To learn more about A.T. Kearney, please visit www.atkearney.com.

About the 2017 Foreign Direct Investment Confidence Index^® 
The A.T. Kearney Foreign Direct Investment (FDI) Confidence Index® is an annual survey of global business executives that ranks which markets are likely to attract the most investment in the next three years. In contrast to other backward-looking data on FDI flows, the FDI Confidence Index provides unique forward-looking analysis of which markets investors intend to target for FDI in the coming years. Since its inception in 1998, the countries ranked on the FDI Confidence Index have tracked closely with the top destinations for actual FDI flows in the subsequent years.

The 2017 FDI Confidence Index is constructed using primary data from a proprietary survey of senior executives of the world's leading corporations. The survey was conducted in January 2017.

Respondents include C-level executives and regional and business leads. All participating companies have annual revenues of $500 million or more. The companies are headquartered in 30 different countries and span all sectors. The selection of these countries was based on United Nations Conference on Trade and Development (UNCTAD) data, with the 30 countries represented in the FDI Confidence Index originating more than 90 percent of the global flow of FDI in recent years. Service-sector firms account for about 45 percent of respondents, industrial firms for 40 percent, and IT firms for 15 percent.

The Index is calculated as a weighted average of the number of high, medium, and low responses to questions on the likelihood of making a direct investment in a market over the next three years. Index values are based on responses only from companies headquartered in foreign markets. For example, the Index value for the United States was calculated without responses from US-headquartered investors. Higher Index values indicate more attractive investment targets.

FDI flow figures are the latest statistics available from UNCTAD, and all 2016 figures are estimates. The data on specific FDI deal values are from Dealogic unless otherwise noted. Other secondary sources include investment promotion agencies, central banks, ministries of finance and trade, relevant news media, and other major data sources.

For past editions of the FDICI, please visit www.atkearney.com/FDICI.

For more information contact:

Jeffrey Gelman
Global Business Policy Council
p. +1 703 350 7840
e. [email protected]

SOURCE A.T. Kearney

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