Turbocharged US economy attracts foreign investors


The extraordinary recovery in the US economy is likely to make the country the world’s top destination for foreign investment this year and next, according to new UN projections, with foreign businesses attracted by the prospect of a rapid and sustained rebound in consumer spending. has gone. The Biden administration’s multitrillion-dollar infrastructure plans.

Foreign investment by businesses around the world declined by a third in 2020 compared to the previous year, according to United Nations data published on Monday. The US posted a 40% drop in investment, but remained limited in its long-standing position as the top destination ahead of China. The United Nations estimated in January that the US had lost the top spot.

For 2021 and 2022, the United Nations expects the US to consolidate its leading position with second-ranked China, as foreign investors expand capacity to meet the huge post-pandemic demand.

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

“We are incredibly excited about the US economy, and now even more so,” said Mark Vaisella, chief executive officer of Bluescope Steel Ltd., an Australian steel company that is looking to meet demand from car manufacturers and construction companies in the US. Expanding capacity.

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The United States and the broader global economy are recovering at a faster pace than many expected at the start of the year, with the United Nations Conference on Trade and Development, or Unctad, expecting 10-15% foreign investment in businesses around the world this year. will increase. and 20-30% more in 2022.

This will take foreign investment above pre-pandemic levels. However, it does not appear that foreign investment inflows will soon surpass the highs seen just before the global financial crisis.

Fresh foreign investment inflows increased during a period of rapid globalization, from the early 1980s until the onset of the global financial crisis, reaching a peak of $1.8 trillion in 2007. While growth slowed in rich countries, especially in Europe, investment declined later. year, it reached a new high of over $2 trillion in 2015. The 2020 total of $1 trillion was the lowest in 15 years.

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

The expansion, approved in 2019 and due to begin steel production early next year, will add about 850,000 metric tons a year on top of the mill’s current capacity of about 2.1 million tons. Another project to further increase capacity at the mill, which could cost around $200 million, could be given the go-ahead soon.

Mr Wasella said a surge in demand for steel from US carmakers and construction companies – whose US prices are at record highs – is likely to accelerate that project.

Bluescope Steelworks in Wollongong, Australia. The company is spending $700 million on its North Star Minimill in Delta, Ohio.


Photo:

Dean Levins/EPA/Shutterstock

“And this is all before spending any money on rebuilding infrastructure in North America,” he said. “When you try and think about the scale of investments being made by the new administration, you know, especially when you sit here in Australia, the numbers are mind-boggling.”

European companies are also planning to increase their presence in the US, said Nestle Purina Petcare, a subsidiary of the Swiss multinational, that late last year will spend about $1 billion to build two new US factories in Ohio and North Carolina. , in order to meet the growing America. customer demand.

According to the American Pet Products Association, sales of pet food and treats in the US grew nearly 10% last year to $42 billion, and are projected to grow another 5% this year. Sales increased as people confined to their homes bought new pets or focused more on the health of their animals.

British pharmaceutical company AstraZeneca plc is buying Boston-based Alexion Pharmaceuticals Inc.

$39 billion in cash and stock to gain a foothold in the lucrative field of rare disease drugs.

Klass GmbH, a German manufacturer of farm equipment such as combine harvesters, invested up to 20% last year to expand its plant in Omaha, Neb. Production at the plant rose nearly 25% last year, as government stimulus payments encouraged farmers to upgrade their machinery, said Leif Magnusson, the company’s sales chief for the Americas region. “The stimulus was at a level that was unheard of for American farmers and producers,” said the executive, who expects a further 15-20% increase in US production this year.

One short-term headwind is an overhaul of the rules taxing multinationals currently being negotiated by 135 governments. A deal appears near, but the uncertainty of how much and where businesses will be taxed is delaying some investment plans, said James Xan, director of investments and ventures at Unctad.

Businesses are also facing closer scrutiny and outright rejection when more governments propose to invest in sectors needed for security or economic resilience.

China remained the largest investor in the world, partly thanks to the continued expansion of its Belt and Road infrastructure project during the pandemic. But some European countries have begun to curtail Chinese participation in their economies, drawing close to the position advocated by US governments from the Baltic to the Adriatic Sea that canceled public tenders that Chinese state-owned companies were poised to win. were, or are moving to impose sanctions. Chinese companies from investing or contracting in their countries.

Some governments are even pushing companies to bring investments home, concluding that it is better to make certain goods, such as critical medical supplies, domestically rather than rely on foreign providers.

The report noted that foreign multinationals continued to invest heavily in China despite rising tensions with the West due to “increasing purchasing power, well-developed infrastructure and a generally favorable investment climate”. While some multinationals may shift production from China to Southeast Asia due to rising labor costs and efforts to improve the flexibility of their supply chains, many consider China to be “an indispensable strategic market”.

Meanwhile, countries in the developing world, still reeling under the pandemic, may be deprived of new investment. Some developing countries saw a slight decline in foreign investment compared to the rich in 2020, but as wealthier countries vaccinate large parts of the population and reopen their economies, poor countries struggle to attract new investment can do.

This can hurt development in the long run, as the transfer of technology and information is particularly important for the development of poor countries.

While India was one of the few economies to see a large increase in foreign investment during 2020, as international businesses raced to increase their online offerings, for which India is a major source of back-office support, Unctad was told this year. Inflows are expected to decline. It expects flows into Latin America and Africa to decrease for similar reasons.

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

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