Foreign investment and economic development professionals continue to face a challenging market environment as investors hold back final decisions, although there is an emerging consensus that a few sectors related to green energy, healthcare and digital economy will go against the grain. 

Juan Pablo Alcantar, senior economic development policy advisor at Economic Development Tuxpan in Mexico, says he’s had meetings with prospective investors who are not ready to commit and are waiting on the sidelines.


“Many are not taking risks and prefer to wait. Few have enough capital to invest for the long term and take the short-term losses,” Mr Alcantar says. This logjam has had a knock-on effect on Economic Development Tuxpan’s own operations. 

“We are more focused on aftercare or business retention and expansion now than on FDI attraction because we needed to retain jobs,” he says, adding that with fewer people and less money the strategy has moved to 80% aftercare and 20% FDI attraction, down from 50-50%. 

In its latest economic monitor report, Unctad said the outlook on 2021 remains weak, particularly in greenfield investment, and it does not expect a recovery until 2022. Many in the industry agree. 

Regarding the economic outlook, economist Fernando Ballesta agrees “it will be long before we get back on track. I wish [I was] wrong”. Health and renewable energy related activities are the exceptions, he says.

The IMF has put the global economy GDP forecast at 5.5% for 2021, up 0.3 percentage points from its previous prediction, and at 4.2% in 2022.

Certain geographic regions and certain industries will “buck the prediction”, according to Hank Marshall, executive economic development officer at the City of Phoenix, as growth looks to be unevenly spread across industries and geographies. 

But the recovery gives a chance to governments to promote the industries that they consider vital to enhancing resilience.

“The immediate future for FDI certainly seems quite uncertain and in flux,” says Christina Schiøtt Liaos, director of northern Europe at the Department for International Trade (DIT). “However, I would assume that governments will use this crisis to incentivise strengthening of international supply chains, particularly for the healthcare sector, as well as reinforcing the focus on climate change. 

“Both these major industrial sectors should provide important FDI opportunities on a global scale,” she adds.

Sebastian Reil, senior consultant at the Berlin-based consultancy FDI Center, says that for practitioners the asymmetry of the recovery, with certain sectors taking prevalence, has resulted in some fast-growing industries steaming ahead as if there were no pandemic. “These are the slivers of hope to focus on.”

The overarching uncertainty has also come hand-in-hand with unprecedented amounts of liquidity. According to an S&P Global Ratings study, cash and investments held by US non-financial/non-utility corporate issuers rated rose 30% to a record $2500bn in the first half of 2020, while debt rose 9% to $7800bn, as companies sought to assuage the pandemic’s sting. 

Hassan Mohalal, director of policy and studies at Dubai Investment Development Agency, highlights that “the global investment capacity is four times the size of the investment gap”, necessitating a collaborative effort from governments, the private sector and financial institutions so as “to steer capital into the real economy, productive assets and future infrastructure”.

As such, mergers and acquisitions, which are driving a lot of FDI activity, will have “very limited economic recovery impact”, Mr Mohalal cautions. “Greenfield FDI projects are both the way out and the way forward to create jobs and avoid a looming livelihood crisis.”

Necmettin Kaymaz, the country director for the US at Turkey's Investment Office, concludes: "Cross-border M&As may pick up, but it will take time for greenfield investments to recover as the uncertainty created by the pandemic still lingers."

These comments were drawn from engagements with the fDi Forum, a professional network of economic development professionals. Click here to join the conversation.