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New
KPMG survey finds evidence for shift in balance of global
economic power
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U.S. to give way to China in investment and influence
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Europe remains attractive to
investors, especially U.K.
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New money to help fuel manufacturing growth in India.
China is expected to overtake the U.S. as the world’s
leading recipient of corporate investment in the next five
years, and should become the most influential country in
IT and telecoms, industrial products and mining, a new study
of future global capital flows has found.
India is likely to see the largest growth in its share of
foreign investment overall, and should become the world leader
for investment in manufacturing. But the European economies
are expected to keep their attraction for investors, with
the U.K. maintaining a very strong position, especially in
financial services.
These conclusions come from a global survey of corporate investment
plans carried out by KPMG International. Corporate investment
strategists from over 300 of the largest multinational companies
in 15 major economies were asked where they plan to invest
in the next 12 months and in five years’ time.
They were also asked which countries they saw as dominant
in their sector today, and which they expected to be dominant
in 2013/14.
The results showed a move away from investments in the U.S.,
Japan, Singapore and the UAE, and a big increase in flows
to Brazil, Russia, China and India (BRIC).
China should receive significant investments from 24 percent
of corporates surveyed in 2013/14, up from 17 percent this
year. Russia can expect investments from 19 percent in five
years, up from 12 percent this year, and Brazil can expect
investments from 14 percent, up from 10 percent.
India’s share of investments is estimated to rise by
8 percent to 18 percent, the largest increase recorded and
driven mainly by a major increase in investment in manufacturing.
By 2013/14, India can expect investments in this sector from
25 percent of the manufacturing companies surveyed, and for
two thirds of these companies it will be their first move
into the country.
By contrast, the U.S. share of investments is expected to
fall by 4 percent to 23 percent, still a very high proportion
of global investment, but placing it behind China. The U.S.
is also expected to give up its dominance of the mining, industrial
products and IT/telecoms sectors, with China taking first
place in each case.
Speaking at KPMG’s 2008 EMEA Tax Summit in Barcelona,
where the survey was launched, Sue Bonney, Head of Tax for
KPMG’s EMA region and a partner in the U.K. firm said,
“The majority of the people surveyed saw the next five
years as a return to more normal patterns of investment, after
a period when the U.S. has had a disproportionately high share
of global investment funds.
“But a return to the market conditions of, say, 2003
does not explain the shift in influence that these strategists
expect towards the BRIC economies. This does look like the
beginnings of a fundamental change in the balance of economic
power.”
Although the major European economies can expect to be overtaken
by the BRIC economies in their share of investment, this is
only because the BRICs do particularly well. The U.K., Spain,
and Italy can all expect an increase in foreign investment,
and Germany can expect to maintain its current share.
The U.K. should remain the most popular developed economy
outside the U.S., increasing its share of investment by 3
percent to 17 percent. In financial services, a traditionally
strong sector for the U.K., the country is expected move from
second place to equal first with the U.S. in terms of global
investment.
“Our survey shows that corporate investors are already
planning their responses to a shift in global economic power
that has been happening for some time.” said Sue Bonney.
“They help confirm the rise of the BRIC economies as
viable alternative places to invest, taking funds primarily
from the U.S. economy. The continued strength of the European
economies may come as a surprise to some, but the fact that
they hold up so well suggests that we may be developing a
roughly equal balance of economic power between the Americas,
Europe and Asia Pacific. That would indeed herald the start
of an entirely new global economic game.”
KPMG International commissioned Lighthouse Research to carry
out a study of future investment plans among large corporates
in the U.S., U.K., Canada, China, India, the Netherlands,
Brazil, Spain, Germany, Switzerland, Russia, Australia, Ireland,
South Africa and Mexico. Three hundred and eleven interviews
were carried out by Lighthouse in March and April 2008 with
senior people responsible for investment strategy in these
companies. A further 10 in-depth interviews were carried out
with private equity and sovereign wealth funds.
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