An impressive 159 large foreign direct investment (FDI) projects worth at least $1bn were announced globally in 2022, fDi Markets’s cross-border investment data shows. This is a record-breaking number of mega projects, as they are known. 

While they represent less than 1% of the 16,000 FDI projects announced worldwide in 2022, they make up for half of the $1tn in capital pledges announced by foreign investors last year, signalling a greater concentration of global FDI in the hands of a limited number of large multinational enterprises (MNEs) with deep pockets and cross-border operations. 

The US was a major hotspot for mega investment projects last year. Data from fDi Markets shows that the country attracted approximately 14% of the mega projects last year — 22 deals valued at an estimated $88bn in capital investment. Factoring in fDi Markets’s figures for inter-state investment, the US’s overall number of mega projects grows to 39, and adds $74.5bn in capital investment. 

A perceived outlier in the data appears as Egypt ranked as the world’s top  destination for mega projects in terms of capital investment in 2022. The country attracted more than $96.8bn in such projects last year, which is close to three times that of its previous record ($34.9bn in 2016). Meanwhile, by number of FDI projects, it grew from an average of 3.5 mega projects per year between 2013 and 2021 to 19 mega investments in 2022, ranking Egypt second only to the US.

The renewable energy industry accounted for the largest share (35%) of mega projects in 2022 as the sector witnessed unprecedented year-over-year growth. Renewables also received huge capital pledges in green hydrogen and wind energy. Amid higher energy prices and supply constraints after Russia’s war in Ukraine, the number of mega investments in coal, oil and gas grew from four in 2021 to 21 in 2022. 

Meanwhile, electronic components (including battery manufacturing); metals (including cathode material production); automotive original equipment manufacturing (including electric vehicle production); and semiconductors accounted for close to a third of announced mega projects. 

Subsidy race

There are multiple factors that contribute to the growing wave of mega projects seen by major world economies in 2022. Capital availability is clearly one of them. Although central banks abruptly raised interest rates in 2022, the cost of capital was still historically low in the first half of the year, giving MNEs and their financiers plenty of room to carry out international expansions.

The availability of private funding, coupled with soaring public support for investment in strategic industries, has triggered an international subsidies race.

The Covid-19 pandemic has accelerated the trend of Western governments bringing back industrial policies to reshore production in strategic sectors, build resilience and create new jobs. The US has been particularly assertive in introducing new economic policies of the likes of the Chips Act and the Inflation Reduction Act, that put billions of dollars’ worth of incentives on the table for investors in semiconductors and energy-transition technologies. 

Facing the daunting prospects of losing competitiveness, the EU scrambled to introduce its own incentives-heavy industrial policies, such as the Green Deal Industrial Plan. Governments across the globe, from Japan and South Korea to India and Mexico have all approved similar plans, effectively triggering a subsidy race to the bottom that has upended the financials of reshoring or nearshoring projects that would have been financially unviable only a few years ago. 

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However, such plans have drawn their fair share of criticism. The Inflation Reduction Act has come under fire from several EU officials as it allegedly disadvantages Europe’s value proposition and lures more investors to the US in key sectors such as electric vehicles and green hydrogen production. “The EU and US should work together to ensure that our respective incentive programmes are fair and mutually reinforcing and thus drive the green transition,” Arianna Podesta, the coordinating spokesperson for the EU Commission on economic affairs, tells fDi.

Investment incentives have become embedded within the lifecycle of investment projects as companies increasingly rely on public funds to support mega-projects. Among others, US-based chip producer Intel has seen its Magdeburg mega-fab in Germany delayed, a part of the company’s €80bn investment programme in the EU, due to subsidy negotiations off the back of the energy price crisis in Europe.

IncentivesFlow, a recently acquired fDi database tracking financial incentives awarded to companies for foreign and domestic investment projects, tracked more than 3400 deals last year worldwide, worth approximately $405bn in capital investment with incentives valued at $44.5bn. While the number of deals fell by 98% from 2021 to 2022, capital investment and incentives grew by 29% and 44% respectively in the same period, which highlights a more concentrated market powered by a wave of large-scale projects. 

More than two-thirds of incentives were announced in the US last year, which was up marginally from 64% in 2021 and 62% in 2020. Hyundai Motor Company’s $5.5bn electric vehicle manufacturing plant in Savannah, Georgia received the largest foreign deal worth $1.8bn while Micron Technology, a semiconductor manufacturer, was awarded the largest domestic deal valued at $5.8bn. 

Green hydrogen boom

The spectacular rise of green hydrogen as a possible key piece in the transition to greener economies also takes credit as a major factor contributing to the mega project wave of 2022. 

Of the 159 FDI mega projects tracked last year, more than 59% were in green hydrogen production, as well as the manufacturing of electronic components and semiconductors.

Total announced greenfield FDI in green hydrogen production stood at 58, for an overall value  $153.9bn last year — its highest ever level and approximately four times larger than the $35.9bn tracked in 2021, according to fDi Markets data. More than 90% of capital invested in green hydrogen projects can be attributed to mega-projects. 

Given that utility-scale, commercially viable green hydrogen technology has yet to prove the concept, there remains some scepticism around green hydrogen and its use cases. The majority of these larger, capital-intensive announcements will spread the capital expenditure over the next decade, whereas fDi Markets allocates the full investment amount at the time of announcement by the company. This methodology has been used consistently across the 20 year life-span of the fDi Markets database to remove variations in the data.

As previously mentioned, Egypt’s staggering FDI performance in 2022 can be attributed to a host of mega projects. This influx in capital is directly related to 17 green hydrogen projects, accounting for 97% of Egypt’s total inbound capital investment in 2022. In particular, India-based solar energy company Acme Group’s $13bn, 2.2 billion tonnes per annum green hydrogen plant in Ain Sokhna, part of the Suez Canal Special Economic Zone, as well as Australian mining giant Fortescue’s green energy arm Fortescue Future Industries (FFI) which has pledged of up to $10bn until 2030. The state’s contribution to FFI’s plans ranges between $500m and $630m.

The wave of mega projects has another distinctive feature: it is powered mostly by large MNEs, which inevitably have more resources to allocate to such endeavours than small and medium enterprises and have the soft and hard infrastructure in place to pull them off. Overall, MNEs made up 54% of capital expenditure in mega-projects and 62% of mega FDI project numbers. 

Since the pandemic, these larger MNEs have tightened their grip on global FDI flows, controlling a larger proportion of FDI. So far, they have talked the talk by announcing bold plans the world over. Now is the time for them to walk the walk. 

This article was originally published in The fDi Report 2023. Download the full report here

Jonathan Wildsmith is production manager at fDi Markets.