According to GlobalData’s greenfield FDI projects database, the number of greenfield FDI projects is expected to be 25% lower in 2023 compared with 2022. In 2024, GlobalData expects investment levels to at least stabilise, however, there is also cautious optimism for a more positive outlook.
Five key trends to look out for in 2024 include:
- Companies must continue to navigate difficult macroeconomic conditions
- The introduction of a new 15% global minimum corporate tax rate
- The global economy gets inflation under control
- Geopolitical tensions remain high and impact where companies invest and the amount of FDI activity
- AI and renewable energy are key themes to keep an eye on
1. A bumpy ride for many countries
For several countries, weary macroeconomic conditions will persist in 2024. Low growth is expected in powerhouses like Germany and the UK. GlobalData estimates real GDP growths of a measly 0.2% and 0.25%, respectively, in 2024. Investors will take a more long-term approach, however, and won’t be too disillusioned by a year or two of low growth. Large markets are attractive to investors as they offer a huge customer base as well as typically best-in-class business environments, talent and infrastructure.
Normally in poor economic conditions, investors seek solace in safe markets. Western Europe, North America and Asia (somewhat) will remain key regional hubs. However, GlobalData expects continued attention on the Middle East. It is the only region that will grow in 2023, primarily down to another strong year for Dubai – which will be the leading destination cities globally by some margin. But other countries, such as Saudi Arabia, continue to pique the interest of investors. Additionally, relatively higher economic growth in China and India could prove pivotal for both inbound and outbound investments to/from these countries.
2. Introduction of a 15% global minimum corporate tax rate
The objective of a 15% minimum corporate tax rate is to make the international tax system fairer by curbing tax avoidance and ensuring tax is paid where revenue is earned. The new rate will apply to multinational enterprise groups with revenues of EUR750m or more. This means small subsidiaries will still be accountable should their parent company meet the EUR750m threshold. In July 2021, 130 countries backed the plan to set a global minimum corporate tax rate of 15%.
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In theory, this could be good news for higher-tax countries as competitor countries that are winning FDI projects due to low taxation become less attractive to investors. Countries that have a strong, non-tax-heavy proposition could be the primary beneficiaries.
Another simple interpretation is that if you are going to tax companies more they will invest less.
Approximately 80% of countries have corporate tax rates higher than 15%.
UNCTAD estimates that the introduction of the new rate could see foreign investment levels decline by between 1% and 4%. However, government revenues collected by host countries on the income generated by FDI could increase by up to 20% globally.
3. Inflationary pressures become better contained
Inflation rates are slowing in many global economies, including most of the G20. However, in almost all countries their respective inflation rates remain above their target rate. For example, in the UK, the consumer price index (the measure of the increase in price levels) has slowed to 4.6% in October 2023 (compared with October 2022). The UK’s inflation rate peaked in October 2022 when the CPI rose by 11.1%. Yet the target rate is 2%. Therefore, current inflation is still more than double the desired level.
Then there are other countries, such as Argentina and Turkey, which are seeing inflation rates continue to spiral. While in Russia inflation has begun to rise (7.5% in November 2023), having fallen to 2.3% in April 2023.
Although the global picture is a lot better currently than one year ago, there is still some way to go before countries bring their inflation rates in line with their target rates. For many, this may be achievable by the end of 2024. However, others will continue to struggle with high levels for longer.
Most economies deal with rising inflation by increasing their interest rates. While overall this has proved successful, high(er) interest rates make economic growth more challenging as citizens are encouraged to reduce their spending. Governments will likely keep interest rates at current levels for the start of 2024 (to avoid price level spikes) with progressive rate cuts expected throughout the rest of the year. Continued price uncertainty will remain a small blocker to investment intentions in 2024 as central banks’ key objective is to get inflation under control.
4. Geopolitical tensions remain high
Among last year's predictions was the war in Ukraine continuing to present pressures on the global economy throughout 2023.
However, during the year we have seen even more global conflict. The latest Israel-Palestine war is again not only causing causalities in both jurisdictions but also dividing other countries by what side of the fence they are sitting on. Trends of friendshoring and nearshoring have already started but could become even more prevalent as investors seek security on their investments.
For example, US outbound FDI is in a period of change. American companies are looking to diversify operations away from China. In 2023, China is only accounting for around 2% of US outbound FDI projects in 2023 compared with over 5% in 2019. This is to the benefit of other Asian countries such as India, Malaysia and the Philippines, among others.
US companies are also looking to invest more in growth markets. Outbound projects into countries such as the UAE and Saudi Arabia have increased substantially. While nearshoring is also a key theme for US companies – demonstrated by Mexico’s increased share (6.3%) of US outbound FDI projects in 2023. These changing trends are expected to accentuate in 2024.
Also, in 2024, there will be several key elections, most notable in the US that could further determine a new world order.
5. Continued focus on artificial intelligence and clean energy
Artificial intelligence (AI) was the most talked about technology investment trend of 2023 and will continue to attract investment throughout the coming year. GlobalData estimates the total AI market will be worth $909bn in 2030. Generative AI will be a key growth area.
Artificial intelligence has become a much more prominent theme for greenfield investments in recent years. Companies have been opening foreign offices and research centres to develop their AI offerings. These include both internal and external offerings.
Companies see AI as a way to provide quicker insights, inducing efficiency savings (in terms of time and cost). Yet, many companies (especially smaller companies) are still only at the initial stages of developing their AI strategies.
Also, many companies and individuals are concerned about privacy and data integrity risks. A GlobalData poll (as of 15 November 2023) found that over 57% of respondents were ‘very concerned’ about this topic.
Economic development adoption of AI is a mixed bag. Some agencies are using AI to better match companies to their offerings, while others have installed chatbots to support with inbound enquiries. Big data analytics is another popular use of AI. Yet many agencies are still waiting for further, clear developments in the technology before deciding on how to implement in their workflows.
Other key technology development areas in 2024 include cloud computing, cybersecurity, IoT and robotics.
Meanwhile, the recent COP28 meetings once again outlined the need for foreign companies to be at the forefront of the energy transition. The volume of greenfield investment projects in renewable and alternative power fell in 2023 for the first time in several years. Renewable energy ranked as the 13th largest FDI sector (by number of projects) in 2019 but surged to 6th in 2022. It is likely to drop one position (to seventh) in 2023. In 2024, GlobalData expects greenfield activity to pick up once more.