The index is a forward-looking analysis of how political, economic, by regulatory changes will likely affect FDI inflows into countries in the coming years. Since its inception in 1998, the study has reliably pointed toward firms’ top choices globally for FDI, with the countries ranked in the index tracking closely with the destinations for actual global FDI inflows.
The index is constructed using primary data from a proprietary survey administered to senior executives of the world’s leading corporations. In this year’s survey, 31% of the respondents said they were more optimistic about Singapore’s economic outlook over the next three years, compared to a year ago.
“Singapore has established itself as a regional financial hub. Its robust economy, stable political environment, corruption free establishment and an educated talent pool have made it an attractive destination for global firms,” said Soon Ghee Chua, Partner and Head of Southeast Asia at global management consulting firm AT Kearney.
“Singapore is consistently ranked as one of the easiest places to do business. That has seen major global companies set up their regional headquarters here. Singapore is also a member of the Association of Southeast Asian Nations (ASEAN) further adding to its lure for companies looking to tap into the 10-nation economic bloc’s growth potential. All of this has contributed to the growth in FDI into the country.”
The results of the index also show that domestic market size, cost of labour, regulatory transparency and lack of corruption are among the top factors that executives look at when making decisions about investing in a country.
Overall, five Asian countries feature in the top-ten rankings in this year’s index, highlighting the confidence global business leaders have in the region:
- China: Ranked second for the fourth year in a row.
- Japan: Continues to rise in the rankings, up one spot this year to 6th place.
- Australia: Jumped three spots to take 7th place.
- India: Jumped two places to re-enter the top 10 at the 9th spot.
The US tops the FDI Confidence Index, holding its first-place position for the fourth year in a row. Global business executives are also more bullish on the US economic outlook than for any other economy. China claimed second place, also for the fourth consecutive year. However, investor expectations about the Chinese economy turned more negative this year, and executives say they will reduce their FDI in China if market volatility persists.
“The US and China have held steady at the top of the index in the face of significant changes in the global operating environment over the past four years,” said Paul Laudicina, founder of the FDI Confidence Index and chairman of AT Kearney’s Global Business Policy Council.
“Executives’ sustained interest in investing in the US and China demonstrates the undeniable and enduring attractiveness of the two largest economies in the world. Over the 18 years of this assessment we have observed consistent investor preference for large markets with robust economic prospects.”
Global executives are increasingly turning to FDI to ignite growth opportunities, despite the overall trend of slowing globalisation. Global FDI flows jumped 36% to an estimated US$1.7 trillion in 2015 - the highest level since 2007 - and the vast majority of executives also believe that FDI will become more important for corporate profitability and competitiveness in the near term. Accordingly, more than 70% of firms in the survey plan to increase their level of FDI over the next three years. A likely reason for this is the rise of protectionist sentiments in many countries - creating greater need for a local presence to do business in those markets.
Read past editions of the FDICI
*The 2016 AT Kearney Foreign Direct Investment (FDI) Confidence Index is constructed using primary data from a proprietary survey administered to senior executives of the world’s leading corporations. The survey was conducted in January 2016.
Respondents include C-level executives and regional and business leads. All companies participating in the survey have annual revenues of US$500 million or more. The participating companies are headquartered in 27 different countries and span all sectors. The selection of countries from which to survey senior executives is based on data from the United Nations Conference on Trade and Development (UNCTAD), with the 27 countries represented in the FDI Confidence Index accounting for more than 90% of the source of global FDI flows in recent years. Service-sector firms account for 45% of respondents, while industrial firms account for about 35% and IT firms account for about 15%.
The index is calculated as a weighted average of the number of high, medium, and low responses to the questions on the likelihood of making a direct investment in a market over the next three years. Index values are based on responses only from companies headquartered in foreign markets. For example, the index value for the US was calculated without responses from US-headquartered investors. Higher Index values indicate more attractive investment targets.
FDI flow figures are the latest statistics available from the UNCTAD, and all 2015 figures are estimates. Other secondary sources include investment promotion agencies, central banks, ministries of finance and trade, and other major data sources.