Which sectors and countries will be the key beneficiaries or drivers of this growth?
Greenfield foreign direct investment (FDI) is expected to grow by approximately 6% in 2022 after getting back to pre-shock levels in 2021, according to GlobalData’s FDI forecasting model.
Greenfield FDI volumes are expected finish 2021 at a similar level to that of 2019. That is a 20% increase on 2020 numbers.
Investors have adapted well to the chaos created by Covid-19. Although recovery speed differs by country and sector, in general investors are in an optimistic mood. New variants of Covid-19 such as Omicron, which at the time of writing is in its infancy, may dramatically shift growth predictions. However, with continued vaccination and booster programmes, the business world is hopeful that it will not experience any other lockdown scenarios comparable with those that heavily impacted FDI project volumes in 2020.
Which sectors will drive FDI?
Life science sectors will continue to grow as the focus to develop more effective vaccines and treatments for Covid-19 continues. Additionally, companies should invest further to combat the next potential pandemic. We foresee FDI in the biotech and healthcare sectors growing by 15% and 10%, respectively, in 2022. Pharmaceuticals will, however, remain the largest life science sector with FDI growing by about 7%.
The sectors that bore the brunt of the lockdowns in 2020, such as aerospace, construction and real estate, leisure and entertainment, and tourism, are expected to return to positive growth. Although the threat from Covid-19 remains, and there is not quite a return to ‘normal’, regulations are allowing these sectors to reopen and interest in investments should pick up.
Non-renewable energy investments are expected to fall marginally year on year in 2022 and continue their overall downward trend. Renewable and alternative power FDI is expected to rise further, after what will be a record year for investments in 2021. Electrification and decarbonisation will be high on the agenda of most governments in 2022 following the COP26 meeting in November. This should be reflected in favourable opportunities for companies to further invest in establishing renewable operations.
Software and IT services will continue to be the largest FDI sector in terms of project numbers. The continued rise of global digitalisation, smart cities and new technologies ensure the sector’s continued growth. Fintech and AI (the latter with a market value expected to treble by 2025) should be notable growth subsectors.
Growth in electronics FDI is predicted to be driven by increased demand for batteries, particularly for electric vehicles and semiconductors. The global chip shortage has impacted several sectors, and companies will take steps to ensure production can keep pace with demand. Companies such as Intel have committed to building chip plants in Europe in the coming years.
Developed economies prosper, developing economies play catch-up
The top five FDI destination countries in the world are expected to remain the same. The US, Germany, the UK, India and China are all expected to see positive growth in 2022. Some of the biggest winners could include Colombia (dependent on government elections), Ireland (if it continues to attract projects that would have gone to the UK in a pre-Brexit landscape) and Portugal (particularly if the tourism sector gathers pace).
Regionally, Central America and the Caribbean is expected to see the largest growth (7.5%) of any world region. This is amid the projected recovery of the tourism sector, which is of upmost importance to the region. Countries in Central America and the Caribbean were heavily impacted by Covid-19 and experienced the largest decline in any world region in 2020. Even with very strong growth in 2022, the region will still fall short of its 2019 project volumes.
Developed countries will continue to grow more quickly than developing countries, particularly because their Covid-19 vaccine roll-outs started much earlier. Western Europe and Asia-Pacific will account for approximately 58% of all inbound FDI in 2022.