The Importance of FDI and Why It Must Be Revived
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The Importance of FDI and Why It Must Be Revived

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The following content is sponsored by the Hinrich Foundation.

Hinrich Foundation

The Importance of FDI and Why It Must Be Revived

Foreign direct investment (FDI) has long been a hallmark of globalization, helping to transform entire firms, cities, sectors, and economies. For evidence of this, we look no further than China.

Attracting cumulative net inflows of $3.5 trillion since 1979 has enabled the country to grow its GDP by almost 8,000%. Over a similar time frame, China has also lifted 700 million citizens out of poverty.

Despite all of the benefits that FDI can deliver, global investment flows have been in a downward trend since the Global Finanicial Crisis of 2009. Our sponsor, the Hinrich Foundation, puts this collapse into perspective.

The Decline of FDI

The COVID-19 pandemic took a heavy toll on FDI in 2020, especially in terms of greenfield investment. These investments involve the construction of new facilities in foreign countries.

Region or CountryChange in Greenfield FDI* (%)
Developing countries-56%
East Asia & Pacific-47%
China-59%
Brazil-16%
India-10%

*Year-on-year decrease in the fourth quarter of 2020.

Within developing economies, FDI decreased the most in China as it was the first country to suffer a COVID-19 outbreak. For Brazil and India—two countries which experienced major outbreaks in 2021—FDI is expected to be fall much further.

Taking a long-term view, however, exposes an even greater issue.

With investment dropping to multi-decade lows, it seems that FDI has become less attractive than it once was.

Identifying the Forces Behind the Decline

Across levels of economic development, public policy mixes are becoming less conducive to inward FDI—investments made in a domestic market by foreign entities.

This coincides with a rise in protectionist attitudes by governments around the world. In India, for example, Amazon and Walmart face restrictions that do not allow them to hold any inventory. The country also imposes data localization measures that make it difficult for companies to operate efficiently.

As a result of these types of measures, the Economic Policy Uncertainty Index has trended significantly higher than it has in previous years.

Another contributing factor to FDI’s collapse is a rise in geopolitical rivalries, particularly between Western economies and China. Since 2015, over 60 foreign governments including Australia, Canada, the United States, and the UK have taken action against Chinese FDI projects.

In many cases, national security is at the center of these disputes.

Changing the Course

For decades, FDI has been a proven mechanism for transferring better practice, capital, and technology around the globe. In addition to boosting GDP and reducing poverty, it has the potential to:

  • Create new supply chains
  • Promote knowledge sharing between economies
  • Stimulate innovation
  • Modernize management training and education
  • Improve business practices and standards
  • Strengthen environmental practices and standards

Nonetheless, governments continue to demand more from international businesses, often calling for higher quality FDI—investments that do more to advance sustainable development and tackle climate change.

Despite these demands, businesses are facing numerous obstacles when attempting to enter foreign markets. This has the knock-on effect of diminishing the financial returns that FDI can generate.

Moving forward, increased cooperation between the public and private sectors is likely to play a key role in reviving FDI’s appeal.

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Navigating Market Volatility: Why ETFs Are Critical Tools

Historically, the trading volume of ETFs has spiked during market volatility. We explore why ETFs are preferred by institutional investors.

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ETFs During Market Volatility

Download the ETF Snapshot for free.

Why ETFs Are Critical Tools During Market Volatility

Investors experienced record-breaking volatility in 2020. During COVID-19 market turbulence, the CBOE Volatility index surpassed the previous peak seen in 2008.

In this infographic from iShares, we explore how ETFs rose in popularity during this time—and the characteristics that make them particularly useful during market volatility.

The Methodology

To assess how institutional investors navigated this volatility, Institutional Investor published a report in 2021 based on a survey of 766 decision makers. Respondents were from various types of organizations, firm sizes, and regions.

For instance, here is how responses broke down by location:

  • 21% Asia Pacific
  • 36% North America
  • 29% Europe, Middle East and Africa
  • 14% Latin America

Here’s what the survey found.

Rebalancing During Market Volatility

In total, 90% of institutional investors said they rebalanced their portfolios between the first and third quarter of 2020. How did they do it?

Among all financial tools, ETFs were the most popular vehicle for rebalancing. For instance, ETFs were used by 70% of investors globally, compared to the 51% who used mutual funds or derivatives.

The popularity of ETFs was evident in market activity. From January to March 2020, ETFs as a proportion of total equity trading volume increased.

 January 2020February 2020March 2020
VIX142058
ETF trading volume$95B$136B$240B
ETF as % of equity volume26%27%36%

Based on an average of daily values. Reflects all listed U.S. ETFs across all asset classes.

This trend is true historically as well, as ETF trading volume has typically spiked during periods of volatility.

Want more institutional insights into ETFs?

Global Forecast 2022

Download The ETF Snapshot for free.

The Attributes Driving ETF Usage

Why are ETFs preferred by institutional investors? They offer three key characteristics:

  1. Liquidity: ETFs make it much simpler to buy and sell large portfolios instantly, instead of trading individual securities.
  2. Transparency: Among multi-asset managers, transparency of holdings is the top reason for using ETFs. A clear holdings breakdown helps these managers achieve exposures to particular asset classes, sectors, and styles.
  3. Efficiency: ETFs can be traded quickly. They typically also have lower transaction costs relative to the underlying basket of securities.

Based on these key benefits, ETFs were an invaluable tool during extreme market volatility.

Growing Momentum

ETFs are also poised to help institutional investors navigate the market going forward. Globally, 65% of institutional investors plan to increase their use of ETFs in the future.

In fact, this is already coming to fruition. As of September 2021, the average daily trading volume of ETFs was up more than 5% compared to 2020.

Evidently, ETFs play a critical part in helping institutional investors achieve their goals.

Download the ETF snapshot for free.

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Plant-based Alternatives: 5 Ways They Benefit the Planet

Conventional meat production is responsible for 14.5% of the world’s CO2 gases. Here we visualize the benefits of plant-based alternatives.

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Visualizing the benefits of plant-based alternatives.

Plant-based Alternatives: 5 Ways They Benefit the Planet

Over the past decade, people have become increasingly interested in plant-based diets. In fact, there has been a 600% increase in people turning vegan in the U.S. since 2014.

Because of this, the plant-based foods market could make up roughly 7.7% of the global protein market by 2030, with a value of over $162 billion, up from $29.4 billion in 2020.

Although initially promoted for their gambit of health benefits, recent studies have shown that switching to a plant-based diet has a list of environmental benefits too.

The following infographic by Billy Goat Brands (CSE: GOAT) (“GOAT”) explores the environmental impacts of conventional meat production and how plant-based alternatives can lessen this impact and be a viable dietary solution for the future.

Environmental Benefits of Plant-based Alternatives

Increased population growth has caused meat production to increase exponentially. The livestock sector is one of the most significant contributors to urgent environmental problems. Conventional meat production is responsible for 14.5% of the world’s greenhouse gases.

Water, land, and ocean conservation have become a major concern for livestock breeding and meat production. It also causes a loss of soil nutrients, leaving land unusable in the future.

Here are five ways in which the production of plant-based alternatives benefit the environment:

  1. Climate Change: The production of plant-based meats causes very low greenhouse gas emissions and can in fact reduce emissions caused by conventional meat production by 70%.
  2. Land Conservation: Switching to a plant-based diet could also reduce global agricultural land use from 4 to 1 billion hectares.
  3. Water Conservation: A plant-based diet can reduce water consumption by up to 50%, saving 14 trillion gallons of water annually.
  4. Cleaner Water: Creating plant-based alternatives does not require excessive spraying of chemicals and pesticides, reducing aquatic nutrient pollution.
  5. Ocean Conservation: Consumption of plant-based imitation fish can stop the practice of overfishing that has caused oceanic dead zones across the world.

Plant-based alternatives offer a solution to these problems. They produce minimal greenhouse gases and require a fraction of the cropland and water needed for conventional meat production.

Health Benefits of Consuming Plant-based Alternatives

Plant-based diets are considered to be naturally nutritious and healthy. For years, registered dietitians and food scientists have touted the perks of eating plants and cutting back on meat.

Here are some amazing benefits of choosing a plant-based diet:

Lower Your Blood Pressure

Several studies have shown that sticking with a plant-based diet can reduce blood pressure, reducing your risk of further health complications. A recent study also found that vegetarians had a 34% lower risk of developing hypertension than those who consume meat.

Prevent Type-2 Diabetes

Our diet and diseases like type 2 diabetes have had a long-standing link. Plant-based diets, especially when rich in high-quality plant foods, are associated with a substantially lower risk of developing type-2 diabetes by over 30%.

Provide Healthy Body BMI

Studies have shown that the mean BMI for vegans was 23.6, while for nonvegetarians, it was 28.8, which qualifies as overweight. The various fibers and antioxidants in plant-based foods reduce fatty lipids in the body and promote a healthy BMI.

Decrease Your Risk of Cancer

According to the American Institute for Cancer Research (AICR ), the best way to source cancer-protective nutrients, including fiber, vitamins, minerals, and phytochemicals, is to eat a diet rich in vegetables and fruit, grains, beans, nuts, seeds, and some animal foods.

Improve Brain Capacity

There is veritable proof that a plant-based diet may improve the cognitive functions of your body. In some rare cases, it is linked to enhancing impairments in Alzheimer’s patients and reducing the risk of dementia.

Most Popular Plant-based Alternatives

There are a variety of plant-based alternatives that are available for consumption in the market today. Meat and milk alternatives are the most popular types of current plant-based alternatives available. Many popular fast-food chains have now adopted using plant-based meats in their menus.

Similarly, in order to combat the extreme exploitation of fisheries worldwide, efforts are being made to create plant-based seafood alternatives for consumption.

Through brands like Sophie’s Kitchen, Billy Goat Brands (CSE: GOAT) gives people the opportunity to invest in companies that offer healthy and environmentally conscious plant-based alternatives for consumption.

Go to billygoatbrands.com to learn more about investing in a plant-based future today.

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