Regionalization of trade and investment is a trend that will continue in the CEE region, and Romania should take into account this new reality. Key industries will concentrate regionally after the pandemic times.
By Claudiu Vrinceanu
The concentration of supply chains in critical industries is nothing new. For example, regionalized automotive supply chains have emerged in eastern Europe – in countries such as Poland, Hungary, Romania, and the Czech Republic – that as a region has attracted $41.4bn of FDI into automotive components, equivalent to more than 20% of the global total, according to fDi Report 2021, the annual assessment of foreign direct investment flows. Similarly, Mexico serves the North American market and has garnered 17% of global auto components FDI since 2010.
“Global value chains, which in many industries have become fragmented across borders after decades of efficiency-seeking investments, were tested throughout 2020. National lockdowns imposed to minimize the spread of Covid-19 and their associated economic shock have revealed their fragility. When China stopped in March 2020, global value chains stopped. Brewing concerns over globalization’s downsides, the rise of China, and critical industries have also been intensified by the pandemic. The combined forces of improving supply chain resilience, protectionism, and tech sovereignty are laying the groundwork for increasing regionalization of the global economy, and some early evidence has emerged already”, states the authors of fDi Report 2021.
Investment blocs, new global trend
Another way to assess regionalization is through the lens of significant trade and investment blocs – in this case, the US-Mexico-Canada Agreement (USMCA), European Union (EU), and Asia’s Regional Comprehensive Economic Partnership (RCEP), according to fDi Report 2021.
In 2020, intra-EU cross-border investment (investment into an EU country made by a company based in another member state) reached $57.8bn, equivalent to 48% of the total. It is a sharp increase from the 40% share made up by intra-bloc investment.
Global trends in the FDI environment
In 2020, both the number of FDI projects and capital investment in FDI plummeted by a third from 2019’s levels. fDi Markets recorded 11,223 FDI projects compared to the 16,816 recorded in 2019. They mobilized a total of $528.2bn, down by 34% from the previous year. Meanwhile, the number of jobs created fell by 40% to 1.36 million in the period.
The US has retained its spot as the top destination country, attracting $61bn of FDI. China, which ranked second in 2019, dropped into the third position in 2020, attracting 40% less capital investment.
Asia-Pacific was the top destination region for FDI by capital investment with $162.2bn-worth of FDI recorded despite a 37% decline in 2020 from the previous year. Western Europe attracted the highest number of FDI projects with 3882 announcements recorded.
Western Europe was the leading source region for FDI in 2020, accounting for 49% of FDI projects globally and $221.5bn in capital investment.