Although nearly 95% of CEOs and senior executives from the world’s largest companies are more concerned about the global economy today than they were a year ago, two-thirds still intend to invest abroad at the same levels as last year.
These are among the findings of a new survey conducted by A.T. Kearney’s in the aftermath of the September 11 terrorist attacks.
About 16% of executives intend to increase investments abroad and 20% will decrease investments. Three-quarters of respondents said that first-time outward investment would likely be destined for developing countries, with one-fourth bound for developed investment destinations – no change from the last study in January.
European senior executives are more pessimistic than their counterparts in the Americas. About a third are unanimously downbeat about global economic prospects, and plan to reduce investments abroad. Senior executives from the Americas say they are more likely to maintain last year’s levels of outward investment.
Three-fourths of global senior executives view a delayed U.S. economic recovery as a primary factor that could influence the implementation of their investment plans this year.
“Despite the growing bearish global economic consensus, the world’s largest foreign investors are keeping a ‘steady-as-you-go’ hand on their investment plans, with the course of the U.S. economy likely to exert the biggest influence over future FDI decisions,” said Paul A. Laudicina, managing director of the A. T. Kearney Global Business Policy Council*, which conducts the annual FDI Confidence Index study.
The negative view of global economic prospects is dramatic compared to the response to the same question in the January survey. More than 90% of CEOs are negative about global economic conditions, compared to a year ago when only 35% felt negative and 24% felt positive.
Geopolitical factors have risen in importance compared to previous results, in which economic variables were the key drivers of capital allocation choices.
“For foreign investors, global political stability in the post-Cold War era had become almost axiomatic; today decision-makers have put geopolitics back into their investment risk calculus,” said Laudicina.
“Global political instability increases the risk of continued economic downturn, which negatively impacts confidence for making foreign direct investments,” noted the chief financial officer of one of the world’s leading metals and mining firms, a comment representative of the answers given to a question about changes in relative risk assessment for FDI decisions after September 11.
Nonetheless, economic fundamentals remain the top priority for executives when making investment decisions. Most CEOs view U.S. and European economic health as among their greatest concerns driving investment decisions. Executives expect U.S.-led military action to have a greater impact on FDI decisions than energy price volatility, Japan’s economic recovery, future trade rounds or the launch of the euro.
The United States suffered the largest negative shift in investor sentiment since the FDI Confidence Index began tracking this indicator in 1998. Nearly one-third of investors hold a more negative outlook of the United States as an investment destination compared with one year ago. Only one in 10 investors have a more positive outlook on the U.S. Over the past four years, investor sentiment toward the U.S. had grown increasingly positive.
China is the only major economy to experience a positive shift in investor sentiment, with close to 15% of executives reporting improved perceptions. This finding comes as no surprise as China is expected to maintain high levels of growth next year as it integrates further with the world economy and formally enters the World Trade Organization.
* The Global Business Policy Council is a strategic service of A.T. Kearney that helps chief executives monitor and capitalize on geopolitical, economic, regulatory, technological and social change worldwide. Council membership is limited to a select group of corporate leaders and their companies. The council's core program includes periodic meetings in strategically important parts of the world, timely analytical products, regular member briefings, regional events and other services.
About A.T. Kearney
With more than 60 offices in 36 countries, A.T. Kearney provides strategic, operational, organizational and technology consulting and executive search services to the world's leading companies. The company is the management consulting subsidiary of EDS.