Turbocharged U.S. Economy Attracts Foreign Investors

The extraordinary recovery in the US economy is likely to make the country the world’s top foreign investment destination this year and next, according to new United Nations projections, as foreign companies are drawn to the prospect of a quick and sustained recovery in consumer spending and the Biden government’s multi-billion dollar infrastructure plans.

According to UN figures released on Monday, foreign investment by companies around the world fell by a third in 2020 compared to the previous year. The US recorded a 40% decline in investment, but just stuck to its longstanding position as the top destination ahead of China. The UN estimated in January that the US had lost the top spot.

In 2021 and 2022, the UN expects the US to consolidate its leading position, with China in second place as foreign investors expand their capacities to meet the huge demand from the pandemic.

The Federal Reserve expects the American economy to grow 7% this year, aided by nearly $ 6 trillion in approved stimulus spending and about $ 2.6 trillion in additional savings American households built during the pandemic.

“We are incredibly optimistic about the US economy even more now,” said Mark Vassella, CEO of BlueScope Steel Ltd., an Australian steel company that is expanding its capacity in the US to meet demand from automakers and construction companies.

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With the U.S. and the global economy generally recovering faster than many anticipated earlier this year, the UN Conference on Trade and Development (Unctad) expects foreign investment to grow 10-15% this year increase and another 20-30% in 2022.

That would bring foreign investment back above pre-pandemic levels. However, it seems unlikely that foreign investment flows will soon surpass the highs shortly before the global financial crisis.

The flow of new foreign investment increased during the period of rapid globalization from the early 1980s to the onset of the global financial crisis, peaking at $ 1.8 trillion in 2007. While the slow growth in rich countries, especially in Europe, depressed investment in the years that followed, it reached a new high of over 2 trillion US dollars in 2015. The total value of $ 1 trillion in 2020 was the lowest in 15 years.

But now companies like BlueScope see better prospects. The company is spending $ 700 million to build a third electric arc furnace and second molten steel caster at its North Star Minimill in Delta, Ohio.

The expansion, approved in 2019 and scheduled to begin steel production early next year, will increase the plant’s current capacity of around 2.1 million tons by around 850,000 tons per year. Another project to further increase the plant’s capacity, worth probably around $ 200 million, could give the green light soon.

Rising demand for steel – with US prices at record highs – from American automakers and construction companies is likely to accelerate this project, Vassella said.

BlueScope steel mill in Wollongong, Australia. The company is spending $ 700 million on its North Star minimill in Delta, Ohio.


Photo:

DEAN LEWINS / EPA / Shutterstock

“And all before money was spent rebuilding infrastructure in North America,” he said. “When you try to think about the level of investment that the new administration is talking about, especially when you’re here in Australia, you know the numbers are mind-boggling.”

European companies are also planning to increase their presence in the US Nestlé Purina Petcare, a subsidiary of the Swiss multinational, announced late last year that it was spending around $ 1 billion on building two new US factories in Ohio and North Carolina will spend to meet rising US markets customer demand.

Sales of pet food and treats in the United States rose nearly 10% last year to $ 42 billion and are set to grow another 5% this year, according to the American Pet Products Association. Sales rose as people who stayed at home bought new pets or focused more on their pets’ health.

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CLAAS GmbH, a German manufacturer of agricultural machinery such as combine harvesters, invested last year to expand its plant in Omaha, Neb., By 20%. Production at the plant rose about 25% last year as government incentive payments encouraged farmers to upgrade their machinery, said Leif Magnusson, the company’s sales director for the Americas. “The stimulus has been at a level unprecedented for US farmers and producers,” said the executive, who expects US production to increase further by 15-20% this year.

One short-term headwind is a revision of the rules currently taxing multinational corporations negotiated by 135 governments. A deal seems close at hand, but uncertainty about how much and where businesses will be taxed is delaying some investment plans, said James Zhan, director of investments and business at Unctad.

Corporations also face scrutiny and utter disapproval when proposing to invest in sectors that governments consider essential to security or economic resilience.

China remained the world’s largest investor, thanks in part to the continued expansion of its Belt and Road infrastructure project during the pandemic. However, some European countries are beginning to block Chinese participation in their economies and are moving closer to the positions held by US governments from the Baltic to the Adriatic, canceled public tenders aimed at winning Chinese state-owned companies, or are moving towards a ban Chinese companies are considering investing or entering into contracts in their countries.

Some governments are also pushing companies to bring home investment because they have concluded that it is better to manufacture some goods, such as essential medical supplies, domestically rather than relying on foreign providers.

Foreign multinational corporations continued to invest heavily in China despite mounting tensions with the West, attracted by its “rising purchasing power, well-developed infrastructure and generally favorable investment climate,” the report said. While some multinational corporations may move production from China to Southeast Asia due to rising labor costs and efforts to improve the resilience of their supply chains, many consider China “a vital strategic market,” the report said.

In the meantime, developing countries are still that in the grip of the pandemic, could lose new investments. Some developing countries saw a smaller decline in foreign investment than rich countries in 2020, but as rich countries vaccinate large swathes of the population and reopen their economies, poor countries may struggle to attract new investment.

That could damage growth in the long term, because technology and know-how transfer are particularly important for the development of poor countries.

While India was one of the few economies to see a sharp spike in foreign investment in 2020 as international companies rushed their online offerings, for which India is a major source of back-office support, Unctad expects inflows to decline this year. She expects flows to Latin America and Africa to be dampened for similar reasons.

Write to Paul Hannon at paul.hannon@wsj.com, Rhiannon Hoyle at rhiannon.hoyle@wsj.com and Tom Fairless tom.fairless@wsj.com

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