View from the Americas: How the past informs the future

The new year is always a challenging time for both reflecting and forecasting, and that seems especially true right now given global political uncertainty and the barrage of contradictory data that seems to emerge weekly. This applies to the complex interplay of stories and statistics regarding tariffs, trade, taxes and FDI.

The latest Investment Trends Monitor from Unctad shows an overall negative trend for FDI in 2018, declining 19% on a global basis. That makes three consecutive years of reduced international greenfield investment and a return to levels not seen since 2009. Falling FDI was felt most in so-called developed economies – down 40% overall in 2018 – and the US saw an 18% drop of inbound FDI. 

Negative Unctad data for US investment seems to be supported by another new report, from the National Association of Business Economics in its quarterly business conditions poll. Likely to the dismay of many US legislators, the business survey showed that last year’s comprehensive tax reform had not changed the investment plans of 84% of respondents. This was headline news on the one-year anniversary of the country’s biggest ever corporate tax reduction. Missed by some, however, was the much more positive news in the same report that half of respondents in the goods-producing sector reported increased investments at their companies, with 20% saying further that hiring and investments had been redirected to the US from abroad. That sounds positive. The challenge, of course, is discerning causality, which is usually a complex blend of push and pull factors in competing geographies, with tax rates often being a small part of the story.

What happens next is guesswork. The Country Risk Quarterly report by Export Development Canada covers 100 countries, with each being assigned six risk ratings measuring different risks affecting business. In 2018, despite a growing global economy, EDC downgraded 60% more country risk assessments that it upgraded. For 2019, it forecasts rising political discontent, populism and protectionism. This will affect FDI volume and patterns, as will a cyclical economic downturn if it comes.

More interesting than the year-to-year gyrations of FDI are broader, structural trends that are emerging. A recent report from McKinsey Global Institute describes a global business and trade environment that is becoming more domestic, more regional, more restrictive, more service-oriented and more digital. How these changes will influence corporate investment behaviour and overall FDI flow will take time to understand and extend well beyond this new year.

Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. E-mail: gwassmansdorf@ngkf.com