Magazine
20:43 4 April 2022
Post by: Warsaw Business Journal

FDI DOG EAT FDI DOG

As Poland continues to be a preferred destination for foreign direct investments (FDI), its competitors seek to eat its investment lunch as the country isn't alone in this race. BY BEN ESMAEL

FDI DOG EAT FDI DOG

The global FDI showed a strong rebound in 2021 — up by 77% to an estimated $1.65 trillion from $929 billion in 2020 — surpassing their pre-Covid level, despite the uncertainty in the global economy caused by disrupted supply chains and high inflation. The uptick in 2021 seems to reflect the market's liquidity giving market players a reason for a positive outlook for 2022. Interestingly, developed economies saw the most significant rise, with foreign investments reaching an estimated $777 billion in 2021. In Europe, the increase is attributed to conduit economies, while the influx to the US more than doubled thanks to cross-border M&A.


STILL OPTIMISTIC

However, the recovery will continue to be highly uneven. FDI flows in developing economies increased by only 30%. The recovery of developing countries is encouraging. Still, the stagnation of new investment in the least developed countries in industries important for productive capacities and essential sustainable development in energy, food or health sectors is a significant cause for concern for local government and global institutions.

Investors are optimistic, placing confidence in the infrastructure sector supported by somewhat favorable (for now) long-term financing conditions, recovery stimulus packages and overseas investment, thanks to the uptick in consolidation and cross-border M&A.


THE BIG PICTURE

However, we must be mindful that last year's growth in FDI influxes unrepeatable, totalling 2.8% of Poland's GDP in 2021 versus 1.8% forecasted for 2022. One can't forget that the market is undecided in terms of the GDP outlook, where investors' confidence in manufacturing and the global value chains remains weak. The market could rapidly swing to the low side once the liquidity dries up due to central banks tightening their monetary policies. We must also be reminded that major economies are heading to election season, infusing even more uncertainty in the market.

Poland will continue to benefit from its geographical location, leverage its multi-year infrastructure investments programs and expertise to expand its manufacturing capacity and play a leading role in helping Europe resolve the supply-chain challenges. Poland will also continue to be a location of choice for businesses seeking nearshoring initiatives for services and manufacturing. Furthermore, expanding projects like the “Poland.Business Harbor” to Armenia, Azerbaijan, Georgia, Moldova, Russia and Ukraine will accelerate the migration of talents, attracting more foreign capital to invest in the pre-seed business.

However, the road ahead isn't easy or straight. Though Poland has been the preferred location for FDI for more than two decades, the country isn't alone in this race. A lot will depend on easing the administrative burden in launching a new business, stability in terms of policies, stable and lower taxation and continued investment in infrastructure and education system to keep the workforce relevant to market needs. It is also essential to consider the risk of a military escalation on the country’s eastern border, hindering investors' appetite for the Polish market.


poland
fdi

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