- For the second year in a row, the 2024 Foreign Direct Investment (FDI) Confidence Index® features an exclusive ranking for emerging markets, led by China, the United Arab Emirates, and Saudi Arabia, with the United States retaining the top position for investment attractiveness in developed markets.
- Two new emerging markets made the top 25 rankings.
- South Africa shows strong growth climbing from 17th to 11th on the emerging markets index, primarily driven by the completed Heineken acquisition of Distell and investor’s enthusiasm for the country’s dynamic and growing technology sector.
- Technology is top of mind for investors, with nearly two-thirds anticipating that their company will expand the use of AI in making investment decisions in the next three years.
The Kearney Foreign Direct Investment (FDI) Confidence Index is an annual survey of global business executives that ranks markets that are likely to attract the most investment in the next three years. Since the FDI Confidence Index’s inception in 1998, the markets ranked on the Index have tracked closely with the top destinations for actual FDI flows in subsequent years. The FDI Confidence Index is a weighted score for each country based on each investor’s (global executive’s) response of high, medium, and low likelihood of investing in said market over the next three years.
This year, the Index further explores AI and the impact of technology and regulation in general on investor operations. “Investors not only view the AI capabilities of destination markets as important when deciding where to invest but are also leveraging the technology directly to inform and enhance the investment decision-making process,” says Sibiya.
The findings of the 2024 FDI Confidence Index (released this month) show there is overall positive confidence among executives about the global economy, despite the many global challenges we face. The United States retains the top position for investment attractiveness for the 12th consecutive year. Looking at the FDI Confidence Index world rankings for 2024, Canada retains the 2nd position, and China jumps to 3rd place from the rank of 7th last year, the United Kingdom increases one rank to 4th, Germany drops one notch to 5th, and France maintains its 6th-place position. Notably, Japan drops from 3rd to 7th, while the United Arab Emirates makes a striking leap from 18th to 8th, perhaps on the back of ongoing business and legal reforms.
“This year’s results reflect continued investor optimism about the global economy in spite of increasing geopolitical tensions,” says Theo Sibiya, Partner, and Africa Managing Director for Kearney. These higher expectations regarding the global economic outlook are likely explained in large part by the better-than-expected performance of the United States, and the 2024 results reflecting a stronger showing for emerging markets overall – with eight markets making the top 25 global rankings, up from six last year.
Sibiya says that a notable 88% of respondents across the world said they were planning to increase their FDI in the next three years — up 6% from last year. “Furthermore, 89% (up from 86% in 2023) said that FDI would be more important to their corporate profitability and competitiveness in the next three years.”
On the technology front, a notable 72% of investors state they are making significant or moderate use of AI in their business operations. Investors anticipate their businesses will use AI for customer service and chatbots, automation of manual processes, and supply chain enhancement. Further, 63% of investors say their organisation will significantly or moderately increase AI usage to guide their investment decisions, citing cost and efficiency savings, as well as decision-making accuracy as the top benefits they gain when using AI in their investment decision-making process.
While this year’s survey continues to demonstrate investor preference for developed markets, accounting for 17 out of 25 of the markets on the work rankings, two more emerging markets than last year made the top 25 rankings. Seven of the 25 markets on the Index — Poland, Chile, Romania, Peru, Hungary, Uruguay, and Oman — joined the list for the first time. China, the United Arab Emirates, Saudi Arabia, India, Brazil, Mexico, Poland, and Argentina make up the top eight positions, and they are the only emerging markets included in the world index rankings.
Despite opportunities in developed markets attracting the most investment capital, emerging and frontier markets are marginally behind and closing in. However, the balance is slow to shift, with most firms focusing on maintaining current levels of investment, and a few actively seeking to divest. Those not currently invested are interested in selling into developed markets, and sourcing from and producing in emerging markets.
Locally, SA has seen a jump from 17th to 11th on this year’s emerging markets ranking in the Index, propelled by SA’s dynamic and growing technology and startup sectors, FDI inflows of R53.8 billion in the second quarter of 2023 driven by the completed Heineken acquisition of Distell, and the continuing interest/investment from European nations and other key markets.[1]; [2] Within the last 10 years, SA’s startup funding grew from $50 million in 2015 to close to $350 million in 2021. Even though Cape Town is referred to as the “startup capital” of SA, Johannesburg is a close second in terms of attracting investment,” says Sibiya.[3]
Despite the positive growth trajectory in FDI witnessed in SA, several challenges persist, which continue to hinder greater investor confidence in the nation’s market.
In 2023 investors cited concerns around:
- Unreliable electricity supply;
- High crime rate and concerns over security;
- Political uncertainty with upcoming elections and shifts in the regulatory framework;
- Perceived challenges in navigating bureaucratic processes and regulatory compliance, particularly among smaller enterprises; and
- Availability of skilled talent.
“Addressing these challenges will be crucial in fostering a more conducive investment climate and sustaining SA’s upward trajectory in FDI inflows,” notes Sibiya.
Despite overall optimism on the state of FDI, investors are wary about mounting risks in the global operating environment, not least of which is the geopolitical turbulence that has been growing in various regions of the world. Indeed, the index results indicate geopolitical tensions remain top of mind for investors, with 28% anticipating an increase in geopolitical tensions in the year ahead. Further, investors indicate the geopolitical tensions will have significant implications for FDI, with 85% of investors stating an increase in geopolitical tensions will either moderately or significantly impact their investment decisions with some firms deciding to nearshore and/or friendshore as a result. In contrast, only 13% say it will have minimal or no impact.
Across developed and emerging economies, report co-author Erik R. Peterson, partner and managing director of Kearney’s Global Business Policy Council, also points to this mounting regulatory complexity as a potential risk for investors to watch: “The rise of industrial policies and trade restrictions could lead to a more heavy-handed regulatory environment across markets that investors will need to address.” Peterson adds, “Regulations on emerging technologies, especially AI, will also increasingly come into effect in the near term with profound implications for businesses and investors alike.”
“Traditionally, European countries are active investors in SA (United Kingdom, Netherlands, Belgium, Germany, and Luxembourg), as well as the United States, Japan, China, and Australia. Most of SA’s FDI is directed to the financial, mining, manufacturing, transportation, and retail sectors, which are crucial to help drive socio-economic growth and development.”2
“As we look forward to the rest of the 2024, SA’s climb in Kearney’s FDI Confidence Index showcases growing investor confidence, especially in the dynamic technology sector. To capitalise on this momentum, SA industries must prioritise creating a conducive business environment and fostering innovation. This will not only attract more foreign investment but also drive sustainable, economic growth in the country,” says Sibiya.
[1] CNBC Africa
[2] Lloyds Bank
[3] CNBC Africa
2 Lloyds Bank
