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THE only
certain thing about the shape of the global economy in
the future is that it will be different from what it is
today. “Global Corporate Capital Flows 2008/09 to
2013/14,” a survey from KPMG International, outlines
some very clear indicators of possible future directions
of corporate capital flows and raises some fundamental
questions about what governments and corporations should
consider.
The
results of the report point to a marked change in the
pattern of international investment. Corporate
investment strategists from over 300 of the largest
multinational companies in 15 major economies were asked
where they plan to invest in the next 12 months and in
five years’ time.
The
increasing importance of the economies of China, India,
Russia and Brazil (BRIC), and widespread economic
concerns in Europe and the US, suggest that we may now
be beginning a new phase in global economic development.
Companies need to ask whether the global business game
is changing, and whether we know the new rules.
To find
out whether there really is a new pattern emerging, and
if so, what its implications might be, researchers asked
over 300 senior corporate-investment strategists in 15
countries around the world which countries (other than
their own) they plan to invest in 2008/09, and where
they are looking to invest in five years’ time.
This
group of people was chosen because their investment
decisions are medium-to long- term, they are intended to
generate real growth for the companies these people run;
and their investments are usually made on the basis of
careful analysis of the underlying prospects for markets
and countries. To add a slightly different perspective,
researchers also carried out 10 in-depth interviews with
private-equity fund managers and controllers of
sovereign-wealth funds. These are organizations with a
very significant influence on investment flows, but with
a different set of priorities from corporate investors.
The
results point to a marked change in the pattern of
investment. This year, the US leads by a long way, with
27 percent of investors planning a significant
investment in the country in the next 12 months. Next is
China, with 17 percent, followed by the UK, with 14
percent, Germany with 13 percent and Russia with 12
percent.
In five
years’ time, however, China is expected to head the
table, with 24 percent planning an investment, followed
by the US with 23 percent and Russia with 19 percent.
Fourth, and the biggest winner overall, will be India
with 18 percent, a rise of 8 percent. The UK will be
fifth, with 17 percent. Elsewhere in the table, one of
the major winners will be South Africa, where today’s
figure of 4 percent expecting to invest will rise to 6
percent.
Although
Brazil will overtake Germany and France, with Russia and
India outpacing both the UK and Germany, the survey
suggests this is not due to any substantial decline in
the attractiveness of the major European economies.
Investors expect to remain broadly as enthusiastic for
investments in France, Germany and the UK in 2013/2014
as they are today.
There is
a shift in sentiment away from the US, and it seems
likely that much of the additional investment expected
to go to the BRIC economies will come from funds which
would otherwise have gone to North America. Given the
very high levels of funds flowing into the US economy
over the past five years, it is possible that investors
are anticipating a return to more “normal” long-term
patterns of investment. Indeed, when researchers asked
investors for their views on the current difficulties in
the credit markets, most (76 percent) saw these as
affecting investment strategies for no more than two to
three years, and there was a strong view that today’s
problems represented a process returning the markets to
normality after several years of abnormal conditions.
But a
return to the market conditions of, say, 2003 would not
explain the change that investors expect in the
countries with most commercial influence in their
sector. Asked which are the top three countries
dominating their sector today, 65 percent ranked the US
as most dominant, followed by the UK with 36 percent,
Germany with 32 percent, China with 30 percent, France
with 18 percent and Japan with 12 percent.
Looking
ahead, although the US, UK and Germany are still highly
influential with respondents, their dominance is
expected to reduce in favor of China, which moves into
second place with 45 percent of responses. More
surprising, Japan, for so long an industrial and
technological powerhouse, is displaced by India, which
also overtakes France. In some sectors, this shift in
influence is even more marked. According to respondents,
China will become the world leader in mining, industrial
products and IT/telecoms, with India becoming the leader
in manufacturing investment and the UK competing on
equal terms with the US for investment in financial
services.
These
are summaries of the results of the survey for each of
the countries which took part. Each section looks at the
attractiveness of the country to corporate investors
this year and in five years’ time, broken down where
possible into results for different sectors. Where
relevant, the summaries also report on the views taken
by respondents of the influence each country has now,
both overall and split down by sector, and its expected
influence in five years’ time. The summaries also look
at the international investment preferences of corporate
investors based in each country.
According to respondents the US is clearly the dominant
economic power both now and for the foreseeable future.
With 27 percent of the sample planning investments in
the country in the next year, and 23 percent in the next
five years, the decline in investment is notable, but
hardly a sign of serious difficulty.
China is
already acknowledged as a major new economic power. In
percentage terms, India can expect the largest increase
in its share of investment in the next five years, but
it is China which will take the largest share of
corporate investment by 2013/14, moving ahead of the US
to receive funds from 24 percent of corporate investors.
For the
UK, the story coming out of the survey seems to be one
of stability and continued growth. From lying third in
the table for investment this year, with 14 percent of
respondents planning to invest, the UK actually
increases its share of investment in 2013/14 by 3
percentage points to 17 percent, but is nevertheless
overtaken by Russia and India.
Germany
looks typical of the mainstream European economies in
this survey. Looking ahead, respondents believe the
country’s investment support holds up well, but it moves
down the league table of recipient countries because
others, especially the BRIC economies and the UK, tend
to do much better.
Russia
is likely to be a major winner in investment terms,
moving from fifth to third in the league table and
increasing its overall share from 12 percent to 19
percent.
India
can expect its share of international corporate
investment to rise by 8 percent to 18 percent over the
next five years, the largest increase recorded in this
survey. It will move from seventh to fourth in the
investment league table, overtaking the UK, Germany and
France.
Among
the BRIC economies, Brazil trails China, India and
Russia in terms of investment in the next five years.
But by comparison with all the other countries surveyed,
it does remarkably well, increasing its overall share of
investment by 4 percent to 14 percent, leaving it sixth
after the UK.
Among
the European economies, Spain is second only to the UK
in increasing its share of corporate capital flows.
Spanish businesses can expect a 2 percent increase in
investment, making them the choice of seven percent of
respondents, matching Italy.
In the
tough battle for international investment funds, Mexico
is at a relatively early stage.
South
Africa is clearly one of the winners in global
investment terms, raising its share of investment by 2
percent to become the choice of 6 percent of investors
in five years’ time. A significant number of these
investors are coming into South Africa for the first
time, signaling growing confidence in the country’s
economy.
Respondent’s message to Australia seems to be that the
country can not expect to rely on its mining sector as a
principal source of wealth for many more years.
Canada’s
share of corporate investment looks set to remain steady
with 2 percent of respondents citing the country as
their choice for investment now and in five years.
Had this
research been carried out five or ten years ago, Ireland
might have expected to feature as a preferred place to
invest for many respondents looking for a
business-friendly, low tax environment.
For
survey respondents, Switzerland features as an
influential country in consumer services and
manufacturing for the year ahead, but is largely
overtaken in these areas by 2013/14.
Survey
responses indicate that Dutch businesses are expected to
improve their worldwide influence in several sectors
over the next five years, particularly consumer
services, financial services and property and transport.
This
article is an excerpt from a thought leadership document
entitled “Global Corporate Capital Flows, 2008/9 to
2013/14” (June 2008), by KPMG International. |
