Brick and mortar investments flail as the foreign direct investment (FDI) world embraces services and a push towards green technology.
FDI has a new look. There is less interest in the old-school, labor-intensive factories in favour of a flood of investment into the service sector. Between 2004 and 2007, manufacturing made up 26% of the global FDI share. In 2020–23, this dropped to just 13%.
While manufacturing lagged, the service sector went from taking up 66% of the global FDI share to 81%.
There has been no shortage of economic and political shocks in the past decade. Trump stepped onto the global stage, Covid changed the world overnight, the UK left the EU, and war broke out in Ukraine and the Middle East, just to name the major ones.
These events have served to accelerate these changes but the sectoral shift in FDI has come from more long-standing structural factors, mainly the rise of automation, protectionism, and sustainability demands.
In the wake of these sorts of events, there is a feeling that bringing production facilities closer to consumer markets strengthens supply chains against disruptions.
There is also political pressure to bring manufacturing jobs back to developed countries.
Increased labour costs that this might incur may not be as much of a detractor because of the rise of automation.
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