By Business Facilities Staff
From the July/August 2022 Issue
A LOOK AT THE FLOW OF FOREIGN DIRECT INVESTMENT (FDI)
In a new element in the Global Rankings section of Business Facilities’ 18th Annual Rankings Report, the United States landed at the head of the class for Foreign Direct Investment (Worldwide). The U.S. is followed by China at number two, and Canada rounds out the top three in the category.
“With global economic shifts continuing to impact the FDI landscape, we added the Worldwide ranking to our annual report this year to widen the lens of our existing FDI rankings,” said BF Editorial Director, Anne Cosgrove. “This list shines a light on the global markets that businesses are showing confidence in during 2021 and this year.”
The Worldwide FDI ranking is just one of four FDI rankings in this year’s Global Rankings. Hungary topped the FDI (Europe) list for the first time in 2022, pushing the UK out of the number one spot it earned in 2021.
Israel landed at the top of the FDI (Middle East/Africa) ranking, moving up from the sixth spot and unseating UAE.
Finally, Brazil moved up a spot on the FDI (Latin America/Caribbean) list to take the lead from last year’s leader, Mexico.
A look at FDI from the U.S. Bureau of Economic Analysis, June 2022:
The U.S. direct investment abroad position, or cumulative level of investment, increased $403.3 billion to $6.49 trillion at the end of 2021 from $6.09 trillion at the end of 2020, according to statistics released today by the U.S. Bureau of Economic Analysis (BEA). The increase reflected a $352.6 billion increase in the position in Europe, primarily in Ireland and the United Kingdom. By industry, holding company affiliates owned by U.S. manufacturers had the largest increase.
The foreign direct investment in the United States position increased $506.1 billion to $4.98 trillion at the end of 2021 from $4.47 trillion at the end of 2020. The increase mainly reflected a $378.4 billion increase in the position from Europe, primarily the Netherlands and the United Kingdom. By industry, affiliates in manufacturing and information accounted for the majority of the increase.
U.S. multinational enterprises (MNEs) invest in nearly every country, but their investment in affiliates in five countries accounted for more than half of the total position at the end of 2021. The U.S. direct investment abroad position was largest in the United Kingdom ($1.0 trillion), followed by the Netherlands ($885.3 billion) and Luxembourg ($715.6 billion). Ireland ($556.6 billion) and Canada ($406.4 billion) rounded out the top five.
By industry of the directly owned foreign affiliate, investment was largest in holding companies, which accounted for 47.3 percent of the overall position abroad in 2021. Finance and insurance affiliates were second largest, with 15.6 percent, and manufacturing affiliates were third largest, with 14.1 percent, of U.S. investment. By industry of the U.S. parent, investment by manufacturing MNEs accounted for 49.3 percent of the position, followed by MNEs in finance and insurance (15.1 percent).
U.S. MNEs earned income of $542.3 billion in 2021 on their cumulative investment abroad, a 25.0 percent increase from 2020. Dividends, or repatriated profits, decreased $65.2 billion, or 21.8 percent.
By country of the foreign parent, five countries accounted for more than half of the total position at the end of 2021. Japan remained the top investing country with a position of $690.0 billion, followed by the Netherlands ($629.5 billion), Canada ($527.9 billion), the United Kingdom ($512.4 billion), and Germany ($403.6 billion).
By country of the ultimate beneficial owner (UBO), Japan ($721.0 billion) remained the top investing country in terms of position at the end of 2021. Germany ($636.5 billion) moved up one position from 2020 to be the second-largest investing country, moving Canada ($607.3 billion) to third. The United Kingdom ($565.2 billion) and Ireland ($353.0 billion) were the fourth—and fifth-largest investing countries, respectively. On the UBO basis, investment from the Netherlands and Luxembourg was much lower than by the country of foreign parent, indicating that much of the investment from foreign parents in these countries was ultimately owned by investors in other countries.
Foreign direct investment in the United States was concentrated in the U.S. manufacturing sector, which accounted for 42.4 percent of the position. There was also sizable investment in finance and insurance (12.5 percent) and wholesale trade (9.7 percent).
Foreign MNEs earned income of $275.3 billion in 2021 on their cumulative investment in the United States, an 82.4 percent increase from 2020.
FINANCE LEADERS HOLD IN PLACE
In the Financial Centers category, there was virtually no movement from last year’s ranking to the 2022 list. New York City once again landed in the top position, followed by London repeating at number two, Shanghai remaining number three, and Hong Kong holding steady at number four. A new addition in the fifth place spot is Los Angeles, pushing Singapore down to sixth place.
This year’s ranking took into account several factors, then weighed against the 31st edition of the Global Financial Centres Index (GFCI 31), published in March.
New York held onto the top position in the index and has now been in first place for over three years. For GCFI, London remained in second place, but dropped 14 points in the ratings.
For the GCFI report, among the top 40 locations, only one rose more than 10 rank places and none fell more than 10 places. Overall, the average rating was stable, less than one point lower than GFCI 30, following three consecutive drops in the average rating.
Asia/Pacific centers generally recovered losses that they experienced in GFCI 30. The authors of that report state this suggests there is restored confidence in the economic strength of the region, and in trade performance. North American and Western European centers had generally stable performance.
The data on which GFCI 31 is based relate to the period up to the end of 2021. “While we might have expected more volatility in the ratings as the world continues to recover from the COVID-19 pandemic,” stated the authors in a press release, “the broadly level ratings in the index suggest that in the last half of 2021, confidence was returning to the world economy.”
Atlanta, Lugano, and Ho Chi Minh City join the GFCI for the first time.
In the GFCI FinTech ratings, New York and Shanghai retained first and second positions. Beijing and San Francisco overtook London to take third and fourth place.
DEVELOPMENTS IN ARTIFICIAL INTELLIGENCE
This year’s ranking took into account several factors, and leaders in Artificial Intelligence (Capital Investment) are the United States, China, and the UK.
In our evaluation, BF turned to the 2022 AI Index, an independent initiative at the Stanford Institute for Human-Centered Artificial Intelligence (HAI), led by the AI Index Steering Committee, an interdisciplinary group of experts from across academia and industry. The annual report tracks, collates, distills, and visualizes data relating to artificial intelligence, enabling decision-makers to take meaningful action to advance AI responsibly and ethically with humans in mind.
The latest edition includes data from a broad set of academic, private, and nonprofit organizations as well as more self-collected data and original analysis than any previous editions, including an expanded technical performance chapter, a new survey of robotics researchers around the world, data on global AI legislation records in 25 countries, and a new chapter with an in-depth analysis of technical AI ethics metrics.
Key takeaways from the Stanford report include that private investment soared while investment concentration intensified. The private investment in AI in 2021 totaled around $93.5 billion. From a geographic standpoint, the U.S. and China dominated cross-country collaboration on AI, despite rising geopolitical tensions.
HONG KONG TOPS AIR LOGISTICS
Air cargo, which was less impacted by COVID-19, had its volumes increase by close to 15% year-over-year (+3.5% versus 2019), to an estimated record 124 million metric tons in 2021. This is according to the Airports Council International (ACI World) data.
Air cargo volumes at the top 10 airports, representing collectively around 25% (34.2 million metric tons) of the global volumes in 2021, gained 12.4% in 2021 year-over-year (or 15% vs. 2019 results). The gain can be attributed to the continued increase in demand for online consumer goods and pharmaceutical products.
Hong Kong International Airport (HKG, 5.0 million metric tons, +12.5%) gained back the top rank and Memphis International Airport (MEM, 4.5 million metric tons, -2.9%) went back to second position, followed by Shanghai Pudong International Airport (PVG, 4.0 million metric tons, +8.0%) in third.
ACI World estimates that there were over 69 million global aircraft movements in 2021, representing a gain of more than 12% from 2020. The top 10 airports represent close to 8% of global traffic (5.3 million movements) and experienced a gain of 33.9% year-over-year, still representing a drop of 16.1% vis-à-vis 2019.
Hartsfield-Jackson Atlanta International Airport (ATL, 708,000 movements, +29.1%) leads, followed by Chicago O’Hare International Airport (ORD, 684,000, +27.1%) and Dallas/Fort Worth International Airport (DFW, 652,000, +26.7%). All top 10 airports for aircraft movements are in the United States.
BOSTON, NYC ON TOP FOR LIFE SCIENCES
Boston is once again tops for Life Sciences Hubs in the 2002 Global Rankings report. The capital of Massachusetts also took the top spot in last year’s ranking report.
The Greater Boston lab and life science market has continually ranked first for nearly a decade in JLL’s annual national life sciences research report.
Greater Boston is home to 19 of the 20 largest biotechnology and pharmaceutical companies by market cap, making Boston a leader in biotech investment and talent. With more than 50 local universities, multiple world class research hospitals and nearly $20 billion in private venture capital investment during the last three years, Greater Boston remains a leader in life sciences activity on a global scale.
“In addition to earning a Top 10 spot on our Corporate Headquarters ranking, this year Boston has once again nabbed the top spot on our Life Sciences Hubs ranking,” said Cosgrove.
“An educated, available workforce and access to higher education is critical to the success of the life sciences sectors,” she continued. “Earlier this year, we named Massachusetts the Best State for Education and Workforce for 2021. Massachusetts boasts a considerable number of higher education institutions and skilled workers, so with those resources it’s no coincidence that its capital city of Boston is a life sciences leader.”
Rounding out this year’s top three Life Sciences Hubs are California’s San Francisco Bay Area in second place (up from the number three last year) and the United Kingdom in third place.
GLOBAL WIND MARKETS ON THE MOVE
The global wind industry had its second-best year in 2021, with almost 94 GW of capacity added globally, trailing behind the 2020’s record growth by only 1.8%. That’s according to the Global Wind Energy Council (GWEC) 2022 industry report.
Looking at the wind energy market across several sources, including the GWEC’s data, BF ranks China, United Kingdom, and Germany as the top 3 for Offshore Wind (Installed Capacity) this year. This represents a swap between China and the UK’s positioning from last year; Germany retains is #3 spot.
The GWEC 2022 report highlights also include Europe, Latin America and Africa & Middle East having record years for new onshore installations. Still, total onshore wind installations in 2021 was 18% lower than the previous year. The decline was driven primarily by the slow-down of onshore wind growth in the world’s two largest wind power markets, China and the US, states the GWEC report.
From an overall view, it’s useful to note that 21.1 GW of offshore wind capacity was commissioned in 2021, three times more than in 2020. making 2021 the best year in offshore wind history, bringing its market share in global new installations to 22.5% last year.
China made up 80% of offshore wind capacity added worldwide in 2021, bringing its cumulative offshore wind installations to 27.7 GW. Total global wind power capacity is now up to 837 GW.
Wind auction activities bounced back in 2021 with more than 88 GW of wind capacity awarded globally, 153% higher than in 2020, according to GWEC.
After a year in which net zero commitments gathered global momentum, coupled with renewed urgency for achieving energy security, the market outlook for the global wind industry looks even more positive. 557 GW of new capacity is expected to be added in the next five years under current policies. That is more than 110 GW of new installations each year until 2026, states the GWEC report.
BF’s global wind market ranking includes a new category—Offshore/Onshore Wind Power (Markets to Watch). Derived from the GWEC report, those nations are, in order: Vietnam; the Philippines; China; India; Brazil; Columbia; South Africa; and Egypt.
As the world faces the climate change impacts the GWEC report provides insight into how wind energy can help propel the energy infrastructure to net zero by 2050.
The wind industry enjoyed its second-best year ever in 2021, with almost 94 GW of capacity added globally despite a second year of the COVID-19 pandemic. This is just 1.8% less than the year-over-year wind energy growth rate in 2020. This is a clear sign of the incredible resilience and upward trajectory of the global wind industry.
However as the 2022 report from GWEC makes clear, this growth needs to quadruple by the end of the decade if the world is to stay on course for a 1.5C pathway and net zero by 2050.
Global capacity increased by 93.6 GW to bring total cumulative wind power capacity to 837 GW, which is year-over-year growth of 12%. While the world’s two biggest markets, China and the US, installed less new onshore wind capacity last year—30.7 GW and 12.7 GW respectively—other regions enjoyed record years. Europe, Latin America and Africa & the Middle East, increased new onshore installations by 19%, 27% and 120%, respectively.
The offshore wind market enjoyed its best-ever year in 2021, with 21.1 GW commissioned. That represents three times more than the previous year. China’s mammoth year of offshore installations accounted for 80% of that growth, helping it pass the UK as the world’s largest offshore wind market in cumulative installations.
MANUFACTURING AROUND THE GLOBE: CHINA, UNITED STATES CONTINUE TO LEAD OUTPUT
The world continues to emerge from the impact of the COVID-19 pandemic, and manufacturing is one of the most hard hit. According to the UN Statistics Division: “The pandemic hit the manufacturing sector harder than during the 2007–2009 global financial crisis, resulting in a drop in production of 6.8% in 2020. The share of manufacturing value added (MVA) in global GDP fell—from 2019 to 2020—from 16.6% to 16.0%. Across 49 countries with available data, manufacturing employment declined by an average of 5.6 % in the second quarter of 2020 and 2.5% in the third quarter of 2020, relative to the same periods in 2019. Losses in working hours were even greater, at 11.9% in the second quarter of 2020 and 4.4% in the third quarter of 2020.”
The Manufacturing Output ranking from BF this year reflects the data released by the UN Statistics Division, with China continuing to hold the lion’s share of manufacturing around the globe. Considering the length of time China has had to steadily increase its global share of output, its position is not expected to change anytime soon.
However, as companies revise strategies post-COVID, an increasing number are looking to their home nations, the United States, and other manufacturing spots to locate. In BF’s ranking, the United States, Japan, and Germany follow China in the leaderboard. Following that group in our ranking this year—South Korea, India, Italy, France, UK, and Indonesia.