US President Joe Biden’s subsidy programs for green energy and technology products are leading a global increase in cross-border investments for those goods, according to a United Nations agency report.
(Bloomberg) — US President Joe Biden’s subsidy programs for green energy and technology products are leading a global increase in cross-border investments for those goods, according to a United Nations agency report.
Two US laws — the $370 billion Inflation Reduction Act and the $52 billion CHIPS and Science Act — have persuaded policymakers in Europe, Japan and South Korea to respond in kind with significant investments in production capacity for semiconductors and green energy goods.
The shift has resulted in a 6% spike in greenfield energy and electronics investments, the UN Conference on Trade and Development said in a report published Wednesday. Of the top 10 largest announced greenfield projects announced in 2022, three focused on semiconductor manufacturing and five on renewables, according to the report.
“These initiatives in developed economies show that there is an important industrial-policy component to the energy transition,” Unctad said. “To stay close to the goal of limiting global warming to 1.5C, the world needs about 1.5 times today’s global GDP in investment between now and 2050,” it said, referring to gross domestic product.
Gloomy Outlook
The US maintained its lead as the top recipient of FDI inflows in 2022, but the gap narrowed with China, which retained the second spot on Unctad’s rankings. Investment inflows to the US fell by 26% to $285 billion in 2022 while inflows to China rose by 5% to a record $189 billion, according to the report.
Overall, the UN agency predicts another challenging year for cross-border investment flows in 2023 following a 12% year-over-year drop in 2022.
Geopolitical uncertainty has forced the world’s 100 largest multinational companies to adopt a more cautious approach to making new investments abroad.
Not so for the automotive sector, however, whose top players are making supply-chain investments overseas in order to expand production capacity for electric vehicles.
The value of greenfield investments in electric-vehicle projects soared 53%, according to the report. For example, Germany’s Volkswagen AG plans to spend $3.3 billion in the United Kingdom for Bentley, its subsidiary, to build its first battery-powered electric vehicle.
Last year’s decline in investment flows was due to a confluence of global crises including the war in Ukraine, high food and energy prices, risks of recession and debt pressures in many countries, Unctad said.
Critical Minerals
The number of new projects focused on mining critical minerals over the past two years has more than doubled during the last decade, Unctad said.
With industrial policy en vogue, governments are pursuing new investments deep into the renewable energy supply chain, with a particular focus on critical minerals needed to produce environmental goods like electric-vehicle batteries and solar panels.
The Biden administration has sought to persuade its democratic allies in Europe and abroad to diversify their dependence on authoritarian nations like China and Russia for critical minerals and other goods.
FDI outflows from Russia totaled $19 billion in 2022 versus $39 billion of inflows the year prior as more companies divested following Vladimir Putin’s invasion of Ukraine.
Unctad said there is some evidence that multinational companies are beginning to restructure their global supply chains away from China.
Investment Screening
A trend toward increased screening of foreign investment flows continued in 2022 and the number of countries conducting investment screening on national-security grounds increased to 37, according to the report.
In total, countries with foreign investment screening regimes accounted for 68% of FDI stock in 2022, Unctad said. The number of merger and acquisition deals withdrawn because of regulatory or political concerns increased by a third.
Nevertheless, US and European companies continued to invest in China last year, despite the Biden administration’s efforts to reorient global supply chains away from the nation.
Last year saw large cross-border mergers and acquisitions that defy the China decoupling narrative — like BMW’s $4 billion stake in the Beijing-based Brilliance Automotive and the $3.4 billion merger of the US-based COVA Acquisition with the Shanghai-based ECARX Holdings.
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