• 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.

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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.

In terms of outbound FDI, the five largest countries – the US, the UK, Germany, Japan and France – will account for 43% of total outbound FDI in 2022. Of these countries, Japan is projected to see the largest increase in outbound FDI, about 7%. Other Asian countries expected to see significant increases in outbound FDI levels include China (12%), Singapore (12%) and South Korea (14%).

M&A, ESG and cautious optimism in 2022

Greenfield FDI is expected to grow at a slower rate than M&A. According to GlobalData’s deals database, the volume of M&A deals for 2021 (up to the start of December) had already exceeded the total for the full year of 2020, representing an increase of almost 13%. We expect M&A deals to grow by about double the rate of greenfield FDI in 2022. Large multinational companies (MNCs), in particular, are able to flex their muscles by acquiring businesses during times of economic uncertainty, and in the short term afterwards.

Environmental, social and corporate governance (ESG) will become the key theme discussed at the senior management level across the majority of MNCs in 2022. From an investment attraction perspective, there will be even more onus on attracting companies that are publicly showing and working towards achieving ESG goals. Failure to do so may result in public backlash. From a corporate perspective, companies that are looking to invest abroad should be mindful of local regulations that can either help or hinder their ESG goals.

There is a determination from businesses to return to normal. Covid-19 has had many detrimental effects, but it has also created some opportunities. Businesses have had time to develop new strategies, and take into account new ways of working and the push towards an evermore digitalised world. We remain cautiously optimistic that FDI can see another year of growth in 2022.

For more coverage of the trends and themes likely to make an impact in 2022 across our publishing network, read the read following: