Kearney’s 2021 FDI Confidence Index Reveals High Level of Supply Chain Risk Aversion

Kearney’s Global Business Policy Council today released its 2021 Foreign Direct Investment (FDI) Confidence Index, an indicator of FDI flows. The ranking reveals a significant fall in overall optimism about the global economy since pre- and early-pandemic levels last year. Investors say they are more cautious as they gear up for a long-haul recovery for investment flows, according to the new report from the global strategy and management consulting firm.

“A year into the pandemic and its severe disruption to the global economy, investors understandably appear chastened,” says Paul A. Laudicina, founder of the FDI Confidence Index® and Kearney’s Global Business Policy Council. “In last year’s survey, investors displayed a strong level of optimism about the global economy and their investment outlook, and many were caught flat-footed by the COVID-19 disruption that brought the world to an economic standstill.”

This year’s rankings point to continued apprehension and uncertainty about how quickly the global economy will recover post-COVID. In addition to the fall in confidence about the economy, most of the overall scores for the top-25 countries have fallen compared with previous years. Only 57 percent of investors are optimistic about the three-year global economic outlook, which is much lower than the corresponding figure last year of 72 percent (prior to and at the onset of the pandemic).

Reflecting investors’ increased caution this year, developed economies account for the lion’s share of our top-25 list for two primary reasons. “First, established markets represent more safety and stability to business leaders whose strategies and bottom lines have been shaken by the pandemic,” said Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “And, second, investors continue to prioritize destinations with strong infrastructure, strong governance, investment in technology and innovation, and macroeconomic stability—natural strengths of most developed markets.”

Only three emerging markets are on this year’s Index: China, the United Arab Emirates, and Brazil. China remains the highest-ranked emerging market, a distinction the country has held consistently since 1999. However, concern over escalating US–China trade tensions and a more general corporate rethink of international supply chains could explain its drop to 12th place. In addition, the virtual disappearance of emerging and frontier markets from the Index could be a reflection that investors believe the rollout of vaccines in emerging markets will be highly uneven, both for logistical and economic factors.

“Beyond these findings, the biggest risk that international investors will continue to face will be the pandemic itself,” Peterson adds. “Overcoming COVID-19 will be key to global economic recovery and the improvement in FDI flows as the two go hand in hand. And economic growth in the near term will be determined in large part by the duration of the global pandemic, the effectiveness of fiscal and monetary responses, and the success of vaccination efforts.”

Laudicina adds, “Despite persistent macroeconomic challenges, investors continue to perceive FDI as vital to corporate profitability and competitiveness over the next three years. And even with investors’ increased caution this year, the FDI plunge in 2020 will likely not become a permanent feature of the global economy.”

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