In the decade leading up to fDi’s foundation, companies were expanding across borders at break-neck speed. Between 1990 and 2000, global FDI grew at an average rate of 15.3% per year, according to Unctad data.  

As much of this growth came from the proliferation of global value chains (GVCs) — where the production process is fragmented across multiple countries in search of efficiency — the global economy became increasingly interdependent. 

Global gross domestic product (GDP; 3.8%) and trade (6.2%) also grew strongly during this decade, helped by export-led growth policies and economic liberalisation, including in former Soviet Union countries.

The upward FDI trend continued into the noughties, albeit at a slower pace, embodied by China’s rise as an economic powerhouse and major manufacturing destination.

Between 2000 and 2010, the underlying trend in global FDI grew at an annual average rate of 8%, exceeding GDP growth of 7%, but lagging behind trade (9%).

However, the global financial crisis brought a dramatic turning point, significantly muting global FDI inflows, falling from the annual average rate of 4.9% between 2000 and 2007, to a mere 0.4% in the years that followed (2008–2019), according to Unctad figures.

Greenfield granularity

The headline FDI figures that Unctad compiles — which include both cross-border deals and greenfield investment — provide a solid overview of shifting investment over the past twenty years. But greenfield FDI project data enables an even more granular understanding.

fDi Markets, fDi’s proprietary database that has tracked announced cross-border greenfield investment since 2003, provides insights as to where, when and how companies have ventured into foreign markets, with additional capability to sort across geographies, industries and business activities. 

Looking across the almost 18 years of global greenfield FDI, it can be split into four distinct periods: the pre-crisis climb (2003–2008), the choppy recovery (2009–2012), the steady six (2012–2017) and the pre-pandemic boom (2018–2019).

As seen in the overall FDI figures, prior to the financial crisis, greenfield FDI project announcements climbed rapidly, but then fell steeply between 2008 and 2009. Despite recovering in the following two years, global greenfield FDI project numbers remained fairly steady from 2012 to 2017.

Then in 2018 and 2019, global greenfield FDI projects grew rapidly to reach new heights — a large part of which was made up by software and IT services (tech) companies. 

Rising intangibility

In 2003, the tech sector accounted for 10.5% of the global total of greenfield FDI projects. Fast-forward to 2019 tech FDI projects made up 18.3% of the global total. 

Richard Bolwijn, head of investment research at Unctad, says that “the first 10 years of this century saw rapid growth of GVC-related investments. But after 2010, investment became more intangible and driven by intellectual property and e-commerce.” 

This growing intangibility is shown in how overseas operations have become less dependent on investment into physical assets. Since 2010, global services exports and fees earned from royalties and licensing have been rising. Meanwhile, goods exports and the underlying trend in global FDI here stagnated.

In part, this divergence is a result of the rise of digital companies that have grown in size and prominence. In 2010, just four of the top 100 multinationals were ‘asset-light’ tech companies — a number that rose to 15 by the end of the decade, according to Unctad.

Manufacturing’s relative decline

The shift away from GVC-intensive industries to services illustrates this trend even more plainly. When records began in 2003, business services operations accounted for 12% of the global total of greenfield projects, while manufacturing made up 37.8%. By 2019, business services attracted 2.3% more of the global total than manufacturing. 

Over the past decade, the value of greenfield FDI into manufacturing has fallen by 22%, according to fDi Markets data.

Another fundamental shift to the intangible economy has been the growing popularity of e-commerce and supporting logistics infrastructure. fDi Markets data indicates that the value of greenfield FDI into logistics, distribution and transportation operations has almost doubled over the past decade, reaching an estimated $73.5bn in 2019.

Green transition

Cross-border investment trends also reflect other major shifts, particularly in the transition away from fossil fuels. In 2003, global greenfield FDI into the coal, oil and gas sector stood at $235.4bn (including estimates), accounting for almost a third of the global total. Between 2015 and 2019, the sector accounted for an average of just 14.2% of total greenfield FDI expenditure.

Meanwhile, the renewable energy sector’s share of global capital expenditure on greenfield FDI rose from 1% in 2003 to over 12.2% in 2019. There were a record 559 renewable energy projects announced by foreign investors in 2019 — more than double the number announced in 2010.

Technological advances and scientific discoveries have buoyed life sciences companies to also rapidly expand their global footprint. Since 2010, greenfield FDI in the life sciences sector has climbed every year, reaching a record 1124 projects in 2019, according to fDi Markets.

Geographical shifts

While FDI has changed profoundly across industries, seismic shifts have also occurred in the destinations and sources of cross-border investment projects. The hegemonic standoff between the US and China is just one example of the profound role geopolitics can play in shaping global investments. Events ranging from the 9/11 attacks and the Iraq War to the Arab Spring and Brexit have all shifted companies’ focus and led to a redistribution of FDI.

Meanwhile the BRICS economies — namely Brazil, Russia, India, China and South Africa — saw their share of global FDI decline from 27% in 2003 to just over 10% in 2019. 

Part of that decline is explained by China’s flip from being a major FDI destination to a growing source market.

In 2004, just 95 greenfield projects were announced by Chinese companies in foreign markets, according to fDi Markets data. Fast-forward to 2018 and China-based firms announced a record 889 cross-border greenfield FDI projects, helped in part by China’s global infrastructure project, the Belt and Road Initiative.

Between 2003 and 2008, China was the world’s leading destination market for greenfield FDI projects, recording more than 10% of the global total every year. Since 2017, China has attracted less than 5% of the world’s greenfield FDI projects.

Tensions between China and the US have reached boiling point in recent years, especially during Donald Trump’s presidency, precipitating a dramatic reduction in American companies’ investment plans in China.

Covid-19

And now, in 2020, the outlook on global investment is as misty as ever. According to Unctad forecasts, FDI flows are set to decline by 30–40% this year, and up to 10% in 2021, following a slash in companies earnings and uncertainty caused by the pandemic.

The latest fDi Index, which tracks investor sentiment, stood at 703 points in October, indicating that it is down by 34.4% from a year earlier. While the pandemic poses the latest challenge for investing companies considering international expansion, one can only wonder what will be the defining trends of the next 10 years.

This article first appeared in the December/January print edition of fDi Intelligence.