Guest Contributor: Guy Douetil – Managing Director of Europe, Middle East, and Africa, Hickey & Associates
European Foreign Direct Investment (FDI) into the US from Europe fell by nearly a third in 2020 (latest estimates suggest a fall from $120 billion in 2019 to around $81 billion in 2020) and many Stateside are wondering when the tap might turn back on?
The US and Europe are each other’s main trading partners with 60% flows each way, which is significantly higher than Asia-Pacific Countries (APAC) at around 37%. Whilst the large falls in 2020 can be explained by the turmoil caused by the pandemic, there are questions being asked across the US as to whether (and when) they might see a return of European FDI into the US. Surely, it must come soon.
European FDI - Inflows Graphic - Hickey Global - June 2021
However, this fall was not unique to just these age-old trading partners. To put this into context total global FDI saw a collapse in 2020 of over 40% from $1.5 trillion in 2019 to roughly $860 billion as estimated by United Nations Conference on Trade and Development and most of the fall was seen in the major developed countries. Investment from the US to Europe dried up completely!
There is no doubt that there are billions of Euros, Swiss Francs and Pounds waiting for the right opportunity and much focus is on British, Dutch, German and Swiss firms who traditionally are the major investors in the US. However, whilst their home markets are still being challenged with new Covid Variants and partial lockdowns many companies are understandably sitting on their hands (and their cash).
The biggest decline has been in new greenfield projects and this may well be set to continue with many nations (including the US) adopting the old adage that investment best starts at home. M&A activity may recover faster.
There are now positive signs coming from across the pond, as March saw a surprising strong rebound in global FDI as companies began to bring forward expansion plans and a refocus of activity looking forward into a post pandemic world. In particular, there were early signs that new greenfield project were once again being reconsidered.
So, 2021 is set to be a rough year for FDI and we may have to wait until 2022 before we see European companies robustly looking across the pond and more importantly opening their cheque books!