Since 2003, software and IT services has been the leading sector in terms of FDI project numbers. For the first time since then, financial services claimed the top spot in 2008 for project numbers, accounting for 10% of all FDI. This is primarily due to a vast increase of 38% on 2007 numbers in the financial sector, compared with a 3% increase in numbers in the software and IT sector.
The top five sectors accounted for 38% of all FDI projects set up in 2008. This share was made up of 5863 projects and $397.9bn in capital investment, and resulted in the creation of more than 1.5 million jobs.
Although the financial services sector came out on top in terms of project numbers in 2008, coal, oil and natural gas topped the capital investment rankings. This is directly related to the high cost of setting up these types of projects due to land cost, machinery cost and availability of these scarce resources. In descending order, real estate, food and tobacco, and metals ranked top by number of jobs created due to labour-intensive activities.
In nominal terms, coal, oil and natural gas, real estate and alternative/renewable energy had the biggest rises in capital investment between 2007 and 2008. However, the largest percentage rise was experienced in the minerals sector with a 793% increase, albeit from a smaller initial figure than most sectors – from $1bn in 2007 to $8.9bn in 2008. Semiconductors slipped from fourth position in terms of capital investment in 2007 to rank 21st in 2008, resulting in a huge decline in the average investment per project from $297m (2007) to $112m (2008).
New entries in the top 10 for job creation in 2008 were driven mostly by increases in project numbers. Projects numbers increased in the coal, oil and natural gas and hotels and tourism sectors by 91% and 86%, respectively, between 2007 and 2008, but showed relatively stable job creation values per project. Textiles slipped from ninth position in terms of job creation in 2007 to rank 12th in 2008 with a 27% decline in jobs per project, despite a 45% increase in project numbers. Electronic components fell from fifth (2007) to eighth (2008) position as the average job creation value per project decreased by nearly one-third, despite project numbers increasing by 38%, indicating a move towards more technology and away from manual labour.
In terms of percentage increase, when comparing 2007 with 2008, minerals experienced the largest increase of all sectors, with 2007’s figure of 29 FDI projects in the sector increasing to 60 in 2008. Although the figures remain small in comparison to other sectors, minerals managed a 793% increase in terms of capital investment, which brought the average value per project in the sector to $149m in 2008 from $35m in 2007.
In terms of increases in project numbers, FDI in the financial services sector increased by 431 projects between 2007 and 2008, followed by increases in the business services (357 projects), real estate (282 projects), and coal, oil and natural gas (265 projects) sectors.
The engines and turbines sector had a significant 93% increase in project numbers in 2008. Project number growth in the industrial machinery, equipment and tools (32%) and electronic components (38%) sectors was also driven by a shift towards the environmental technology cluster. The alternative and renewable energy sector showed a substantial growth of 40% in project numbers, increasing its market share to 2.6% in 2008 from 2.4% in 2007. Most new projects in this sector (94%) are geared towards electricity production, verifying the positive global investment conditions for such projects.
The majority of the top five declining sectors in terms of project numbers in 2008 showed an increase in terms of investment value. Capital investment increased in the following sectors in 2008: chemicals (44%), wood products (66%), leisure and entertainment (144%), and the space and defence sectors (10%). FDI in these sectors has been concentrated in fewer but relatively larger projects.
The only declining sector in terms of project numbers that also showed a decrease in terms of capital investment was semiconductors. Capital investment in this sector decreased by 68% in 2008 in comparison with 2007, showing that semiconductor projects have declined both in scale and scope.
In 2008, the lion’s share of FDI was in manufacturing activities, accounting for 23% of all FDI projects (3628) and almost one-third of all capital investment ($489.6bn), and resulting in the creation of nearly 1.4 million jobs. FDI project numbers in manufacturing have increased year on year but the overall increase in global FDI, along with other types of business activity figures growing at a faster rate, has resulted in manufacturing reducing its dominant share of the market with percentage share figures declining from 34% in 2003, to 23% in 2008.
Although manufacturing accounted for one-third of all capital investment, this is primarily due to the vast number of projects involved rather than large investments per project. Activities requiring the most investment per project were electricity, extraction and construction – all capital-intensive activities.
The positions of the different business activities have remained generally unchanged since 2003 with the exception of the electricity function, which rose dramatically from 14th position in 2005 with only 76 projects to eighth position in 2008 with 341 projects. This trend correlates with the increase in FDI in the coal, oil and natural gas sector, and in particular alternative energy, as this accounts for 71% of all electricity projects in 2008.
In 2008, extraction, education and training, coal, oil and natural gas, and ICT and internet infrastructure had the biggest growth. The total amount of capital investment in electricity activities rose from a relatively low $66.9bn in 2007 to a huge $159.8bn in 2008, increasing its market share of capital investment across all activities from 7% in 2007 to 11% in 2008.
An interesting pattern in 2008 is the fall of FDI projects in the areas of call-centre activities (customer contact centres and shared service centres). FDI project numbers, capital investment and jobs created have all declined in this activity. There could be two possible explanations for this.
First, until 2006/07 there was a large rise in FDI in the setting up of call-centre activities; 2008 could simply be the lull after the boom. Second, more stories are coming to the forefront that customers prefer to talk to a ‘local’ when calling help lines. This has prompted some companies to favour customer satisfaction over low-cost facilities, so these companies are bringing call-centre operations ‘back home’. For example, in 2008 Orange announced that it was shifting its Indian call centres back to the UK.