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25 August, 2022

FDI in chemicals in 2021: the state of play

Chemicals FDI fell by 2.2% in 2021, as the sector continues to experience a slow recovery from the Covid-19 pandemic.

By Glenn Barklie

The Covid-19 pandemic caused overall greenfield foreign direct investment (FDI) project numbers to decline by 17.5% in 2020. However, as the world reopened in 2021, investors reacted quickly and FDI levels rose by 18.1%, according to our Global FDI Annual Report 2022. Most sectors witnessed a rise in their number of projects, with companies keen to make up for lost time, yet the rise is not expected to be sustained. Investment levels will likely fall again in 2022. Russia’s invasion of Ukraine has led to heightened geopolitical tensions, a global cost of living crisis, slow economic growth and continued supply chain disruptions. All of which will claw back the resurgence FDI seen in 2021.

Chemicals FDI fell in 2021

Although most FDI sectors witnessed an increase in FDI in 2021, chemicals FDI fell slightly. Our FDI Projects Database shows that there were 307 projects in chemicals in 2021, down from 314 the year before. This was yet another year of falling chemicals-related FDI, as project numbers had already fallen by 27% in 2020. This points to the industry’s prolonged Covid-19 hangover.

In examining chemicals FDI by its investment type, new investments accounted for double the amount of expansion investments. In fact, new investments grew annually by 7%, whereas expansion projects fell by 17%.

Where are the leading destinations for chemicals FDI?

Western Europe and Asia-Pacific were the leading region when it came to attracting FDI projects in chemicals in 2021, accounting for over half (53.6%) of all projects announced or opened globally. In the last three years, chemicals FDI into western Europe has been relatively stable, albeit there was a slight decline in 2021. On the other hand, chemicals FDI into Asia experienced a slight recovery in 2021 but is well below levels experienced in 2019.

Other world regions – North America and CEE and CIS – have experienced year on year declines in inbound chemicals FDI since 2019.

China was the leading destination country for chemicals FDI in 2021. Its inbound levels almost doubled in 2021 compared to 2020 and were only slightly below its pre-Covid 19 levels (in 2019).

Axalta and Clariant were the top foreign investors into China. Each company created three new FDI projects in 2021. US-based Axalta expanded its waterborne coatings plant by opening two new warehouses in Shanghai. It also announced plans to open a new coatings facility in Jilin City. Meanwhile Clariant announced an investment of $66m to build an additional facility to manufacture its Exolit OP flame retardants in its Daya Bay facility. The Swiss company also opened a new $49m innovation centre in Shanghai and a new production facility for high-end stabilizer additives in Cangzhou.

China displaced the US, which fell to second place, as the top inbound country. Some other big winners within the top ten inbound countries included the UAE, which received more projects (12) in 2021 than it did in 2019 and 2020 combined. Reliance Industries announced one of the largest investments – a $2bn chlor-alkali, ethylene dichloride and polyvinyl chloride production facility in Ruwais, Abu Dhabi.

Brazil also saw an increase in chemicals FDI projects in 2021. India, the US, Turkey and Mexico were among the biggest losers – seeing the number of inbound chemicals projects fall in 2021.

What are the top chemicals FDI operations?

Manufacturing remained the leading business operation for foreign chemicals investors in 2021. Manufacturing accounted for almost two thirds of chemicals FDI projects. However, chemicals manufacturing continued its decline since 2019, falling by a further 3.5% in 2021. Sales operations, which were the second most popular chemicals FDI business function, stabilised in 2021, growing by 4%. Research and development operations jumped by over one third in 2021 but remained below 2019 levels.

Headquarters and logistics operations showed little signs of regaining momentum. The number of FDI projects in each business function were less than 50% of what they were in 2019.

HZO, a US-based company that produces protective nanocoatings for electronics, opened one of the largest foreign chemicals manufacturing facilities in 2021. The near 7,500 sqm site was built in Bac Ninh, Vietnam. It will create 2,500 new jobs over three years.

What are the top subsectors for chemicals FDI?

Basic chemicals and nitrogen compounds was the leading chemicals FDI subsector in 2021. There were 61 projects recorded, up 61% from 2020 but still 20% below 2019 levels.

BioChem USA announced plans to invest $275m to establish a bio-refinery in Dahej, India. The new plant is to process corn and biomass to produce protein feed for animals, bio-fuel ethanol and bio-jet fuel. The investment will create 2,000 new jobs.

Paints, varnishes and coatings were another popular chemicals subsector. It ranked second, just ahead of industrial gases. Although the two subsectors are seemingly on different trajectories. Paints, varnishes and coatings FDI stabilised in 2021, after a 39% fall in 2020. Meanwhile, FDI in industrial gases continued its annual growth – project numbers were 45% higher in 2021 compared to 2019. The US has been the leading destination for industrial gas FDI since 2019. Its received double the number of projects (20) compared to China, which was the second largest inbound country.

Where are the leading chemicals investors located?

Investment Monitor's analysis shows that the US remained the leading source market for outbound chemicals FDI in 2021. The number of outbound projects from US companies increased by 78% from 2020 but was still below the 90 projects created in 2019.

Germany was the second largest outbound market. However, the number of projects created by German companies in 2021 (31) was less than half the level of 2019. Equally, Japanese and Swiss companies experienced further sharp declines in outbound activity in 2021.

On the other hand, the UK, which ranked third, has shown a consistent level throughout the three-year period. Canadian companies saw the biggest rise in outbound investment – 13 projects created in 2021. While China is a much smaller market for outbound investment (11 projects) in contrast to being the second largest recipient.

The Carlyle Group and PPG Industries were the leading chemical investors in 2021. The Carlyle Group, through its Nouryon Chemicals subsidiary, announced nine chemical investments in 2021. These investments, which were mostly manufacturing or R&D based, were scattered across several locations. It opened a new organic peroxide production facility in Tianjin, China as well as a new office and innovation centre in Dubai.

PPG Industries revealed eight foreign chemical projects in 2021. Investments were also spread across several locations and with a manufacturing and R&D focus. Six of the investments were expansions of existing paints and coating facilities. As an example, the company spent $13m to expand its facility in Shanghai. It also opened new facilities in Germany and Morocco.

What does the future hold for FDI in chemicals?

To summarise, FDI in the chemicals sector is one of only a few sectors that is continuing to experience declining levels. Although Covid-19 caused FDI in many sectors to fall in 2020, the majority recovered in 2021. The outlook for FDI in 2022, in general, is gloomy. We expect FDI in chemicals to experience another difficult year.

The Ukraine-Russia conflict has affected supply chains and added inflationary price pressures, lengthening timelines and making company profits harder to achieve. Additionally, the US-China decoupling could have huge implications for the chemicals industry. The US is the leading outbound location and China is the leading recipient. Also, other sectors closely aligned to the chemicals industry, such as aerospace and automotive, are experiencing slower FDI recoveries or a permanent reduction in (FDI) demand, as in the oil and gas industry.

The chemicals sector must become more environmentally friendly, which is already on the agenda of many companies with ESG becoming a key company assessment nowadays. Furthermore, the industry must become more digitalised and adoptive of modern work practices to streamline processes.

Click to download the full Global FDI Annual Report 2022.

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