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What Does Rising Inflation Mean For FDI?

Inflation is rising across the globe in 2022, but what does this mean for multinational companies and FDI levels?

“Some companies may seek a less inflation-sensitive destination and plan to move operations there in lieu of rising costs in a current location,” says Glenn Barklie, chief economist at Investment Monitor. “On the other hand, with rising energy and food prices driving up costs and tightening profits, companies could see FDI as too risky in the current climate.”
Seth Martindale, senior managing director at commercial real estate company CBRE and a member of the Site Selectors Guild board, believes this is definitely the case. “I don’t’ think inflation is impacting so much where companies decide to go," he says. "It is impacting more whether they go at all. Not everybody is going ahead no matter what, as it was the case up until 18 months ago when companies were eager to reboot operations after Covid-19.” The second impact of inflation on businesses relates to talent and workforce. “As individuals’ costs rise there may be increased pressures on companies to raise wages,” says Barklie. “People may be more open to switching roles in order to maintain a similar standard of living.”
Ever since the Covid-19 pandemic struck, talent has been on the rise as an FDI driver, and it is front and centre of investors’ discussions about foreign investment.

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