Despite the Covid-19 pandemic and continued travel restrictions across much of the globe, the US welcomed strong levels of foreign direct investment (FDI) in 2021, according to Chris Lloyd, chairman of the Site Selectors Guild (and senior vice-president and director of infrastructure and economic development at McGuireWoods Consulting).
In fact, FDI to the US increased by 114% to $323bn compared with the previous year, making the country the world’s largest host economy, according to the most recent global trends report from the UN Conference on Trade and Development (UNCTAD).
Why has the US been hot for investors?
Statistically, foreign investment to the US in 2021 was always going to shoot up from the low mark set by 2020’s performance (when FDI around the world plummeted due to the pandemic). Even with this base effect factored in, investment bounced back with extra aplomb, registering pre-pandemic level figures that were only higher in 2016.
“The US economy has recovered much more quickly than expected, and quicker than others, so we are seeing an acceleration of some trends and industries that were already strong pre-Covid,” says Lloyd. There have been some big wins for semiconductors, electric vehicles, autonomous vehicles, aviation, and food and beverage, he adds.
In these sectors, big ticket deals included a major project from Taiwan Semiconductor Manufacturing Company (the world’s most valuable semiconductor company) in Arizona and two huge announcements from Nestlé. These are good examples of how, despite the paucity of greenfield FDI across the globe in 2021, this form of productive investment has not slowed down as much across developed economies, especially in the US.
Also of note is how a number of US states have made very concerted efforts to court Japanese and South Korean companies in semiconductors and electric vehicles, while European food and beverage or life sciences companies are being more heavily targeted than in the past, says LIoyd. Interestingly, there has been less focus on, and influx of, FDI across Covid-related sectors than expected, he adds. However, mRNA technologies and other vaccine technologies that have come out of the Covid experience hold a great deal of promise in the coming years.
Lloyd also points out that the hospitality and tourism industries are embarking upon a strong recovery, with lots of FDI projects being taken off hold. On the other hand, office and retail construction remains very weak due to Covid’s impact on work and consumer habits, while industrial and warehouse projects are going very strong.
Looking forward, the Site Selectors Guild expects overall FDI activity levels to the US to remain strong throughout 2022, especially as travel restrictions decrease with the slowdown of the spread of the Omicron variant.
“One of the things that will be of interest to see is, as Asia and Europe recover and reopen, whether maybe some of that activity might wane,” says Lloyd.
Companies from those regions saw a lot of opportunities in the US in 2021, when their countries were under stricter lockdowns or greater economic distress. This, therefore, is the only cloud of uncertainty, says Lloyd: will companies shift their sights back to their home regions in Europe and Asia as their economies catch up in the return to ‘normality’?
Investors flocked to southern states
While foreign investment to the US spread far and wide in 2021, the Site Selectors Guild identified a very notable increase in interest and activity across the southern states, especially Arizona, Florida, Georgia, South Carolina, Tennessee and Texas.
“The main reason for this is a pre-pandemic trend that Covid accelerated: the southern states are where the US workforce is moving to,” says Lloyd. Migration from the Midwest and the north-east has indeed accelerated over the past two years.
“Then there is the fact that the southern states didn’t lock down as severely as the northern ones. Like US citizens, companies recognised that and maybe appreciated the commitment to business,” contends Lloyd.
On the flipside, the Covid death rate in many southern states (most of which are Republican) has been higher than states outside the south, generally speaking. To this, LIoyd rebuts that the statistical differences between these locations are not that substantial.
What of the Biden effect?
Although foreign investment to the US performed well under the Trump administration, investors were unsettled by the nationalistic, unconventional rhetoric that was frequently tweeted out of the White House. To what extent have things changed under President Joe Biden?
“Foreign investors are responding well to Biden’s ‘return to normality’, but I don’t think we are back to normal yet,” argues Lloyd. “I mean, it took the Biden administration a very long time to phase out steel and aluminium tariffs imposed on Europe and others, but I do think that this administration is much more engaged and is not openly hostile to a lot of the companies.”
In many respects, Biden’s foreign policy has picked up where Trump left off, especially with regards to China. In 2021, the Site Selectors Guild continued to see fewer and fewer blockbuster deals from Chinese companies (when compared with the final year of Barack Obama’s presidency), due to ongoing geopolitical tensions between Washington and Beijing, Covid-19, and other factors internal to China.
“We are seeing a greater proportion of greenfield FDI projects from China, mainly because there is very little existing product out there for mergers and acquisitions [M&A],” says Lloyd.
There is also the fact that, due to the US’s increased scrutiny of Chinese M&A, Chinese investors are being prompted to undertake greenfield FDI instead.
China aside, LIoyd spells out four policy areas where the US economy and investment climate could seem some improvement. First, workforce rescaling and upskilling. Second, developing a more coherent immigration policy, particularly for talented workers who need better visa policy. Third, better clarity on the corporate tax policy, especially the still-unfolding global treaty on corporate taxes. Last, make sure that capital from the Infrastructure Bill actually goes towards projects with the most impact, such as better connectivity between ports and inland.
The Site Selectors Guild has already seen a lot of interest from foreign investors sniffing around the bill, something echoed by the recent UNCTAD report, which states: “Overall, investor confidence is strong in infrastructure sectors [across the globe], supported by favourable financing conditions, recovery stimulus packages, and overseas investment programmes. The number of international project finance deals was up 53%.”
However, until the rules of the US Infrastructure Bill are written, investors will not know which are the best short-term and long-term opportunities, according to LIoyd. “But I think we are going to see a lot of investment in renewables: solar, wind, hydrogen and storage capabilities, as well as lots of investment in port-related projects, especially rail and trucking improvements that will help move goods inland from the ports,” he says.
In short, 2022 could see another stellar performance with regards to the US’s investment regime, especially once investors see how the Infrastructure Bill pans out. It will also be very interesting to see if the US southern states maintain their spiking allure to foreign investors once more and more northern states roll back Omicron-induced restrictions.