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Is FDI In Trouble?

With ever more stringent regulations, rising protectionism and falling project numbers, Martin Kaspar assesses just how much trouble FDI is in. Investment Monitor

Foreign direct investment (FDI) flows – save for a brief recovery in 2021 – are in decline. Since their record high in 2016, FDI flows have been on a downward trend, a development even more pronounced if we merely look at greenfield projects. Apart from several semiconductor and electric vehicle battery projects, the situation looks gloomy, in particular for the least-developed countries. Over the past decade, their measly share of approximately 2% of global FDI continues to decline – in absolute numbers as well as in share of gross domestic product.

Protectionism and regulatory overshoots in the name of national security increasingly erode investor confidence and risk appetite. Rather than pointing to asset-lite FDI, we would argue that we are witnessing a structural decline of FDI as a result of over-regulation and protectionism. We are certainly not advocating a Friedmann-esque surge of deregulation but instead a simplification and streamlining of regulatory guard rails. Otherwise, the current trend of corporates not considering FDI a worthwhile endeavor due to overly complex procedures will persist.

We, therefore, seek to pinpoint some of the new realities that make it too complex for corporates to engage in FDI, look at current developments and corporate reactions, and attempt some initial suggestions for a rebalancing.

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