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The USA attracts FDI equivalent to 6.6% of GDP, compared to a 17% global average.

The USA is lagging behind most major economies in terms of its ability to attract foreign direct investment, according to a new study by UHY, the international accountancy network.

Over the five years since the global credit crunch, the USA has attracted FDI equivalent to just 6.6% of its GDP (USD$1.043trillion in total). On average, countries around the world have attracted FDI worth 17% of their GDP in the five years since the credit crunch.

The study looked at net FDI inflow over the last five years in 33 major economies around the world, measuring how successful they have been in attracting FDI compared to their GDP.

The USA also lagged behind neighboring Canada which attracted foreign direct investment equivalent to 11% of its GDP (a total of US$200billion).

Winning foreign direct investment provides an important boost to national economies, creating new jobs and tax revenues in the short term, and in the longer term improving productivity by helping to fund capital investment and making domestic companies more competitive.

UHY explains that several countries, such as Ireland and Singapore have been enormously successful in setting up favorable tax and regulatory environments that have encouraged companies to set up regional headquarters there. For example, Yahoo, Google, Apple, PayPal and LinkedIn all have European headquarters in Ireland, and Asian headquarters in Singapore.

UHY explains that the USA imposes relatively high tax rates, which has a potential disincentive to investors. Overseas investors acquiring a US company or asset may also have to comply with complex bureaucratic hoops to gain approval.

Rick David, Chief Operating Officer at UHY Advisors, Inc., said: “The USA is the biggest economy in the world and of course exposure to that huge market is attractive for most international investors. On a daily basis, we are being called upon to assist the foreign investor in navigating the FDI process. When measured against the US GDP, the US may not be amongst the leaders as a location for FDI, however, it is still a target of much FDI, especially by SME’s.”

“Lowering our relatively high corporation tax could help attract more international businesses to invest in the US.”

Belgium, which took top place in the study, has attracted net FDI equivalent to 91.4% of its GDP over the last five years – FDI totaling over US $442 billion. In terms of the absolute amount of FDI received it was behind only the USA (which received over $1 trillion) and China ($563 billion).

Belgium has been particularly innovative in its use of tax legislation to attract international companies. While it has recently phased out the role of so-called ‘co-ordination centers’ for inter-company loans which helped companies to manage their global tax liabilities, it now hopes to differentiate itself by providing tax reliefs for companies that fund their businesses through equity rather than debt. In addition, Belgium has generous tax breaks for R&D and investment in capital goods, as well as fiscal incentives for hiring employees. Belgium’s attractiveness as a European HQ is reinforced by the access it offers to EU decision makers and its importance as a logistics location

Ladislav Hornan, Chairman UHY, comments: “Small economies such as Singapore and Ireland can punch well above their weight by offering significant tax incentives to companies choosing to locate there.”

“But those tax incentives only work because they also have a well-educated workforce, strong infrastructure and the sophisticated ecosystem of suppliers that a multinational needs when they decide to locate to a country.”

“Although labor, real estate and energy costs tend to be far lower in emerging markets than in developed economies these figures show that developed economies that offer the right incentives, are able to attract in even higher levels of FDI.”

 

Country

Total FDI inflow 2008-2012 US $ million

FDI as % of GDP

1

Belgium

442,255

91.4%

2

Singapore

203,336

74.0%

3

Ireland

92,851

44.1%

4

Estonia

6,897

31.6%

5

Uruguay

11,139

22.7%

6

Croatia

12,744

22.6%

7

Peru

42,283

21.5%

8

Israel

42,487

16.8%

9

Romania

26,458

15.6%

10

Australia

231,209

15.2%

11

Nigeria

38,942

14.8%

12

Czech Republic

28,429

14.5%

13

United Arab Emirates

39,968

14.5%

14

United Kingdom

329,419

13.5%

15

Spain

181,839

13.5%

16

Malaysia

39,957

13.2%

17

Russian Federation

261,034

13.0%

18

Brazil

251,445

11.2%

19

Canada

200,100

11.0%

20

Egypt, Arab Rep.

24,908

9.7%

21

Argentina

44,024

9.4%

22

India

165,654

9.0%

23

Austria

34,694

8.7%

24

Mexico

100,039

8.5%

25

France

185,670

7.1%

26

Netherlands

52,728

6.8%

27

China

563,111

6.7%

28

New Zealand

11,179

6.7%

29

United States

1,042,432

6.6%

30

Germany

143,499

4.2%

31

Denmark

9,769

3.1%

32

Italy

62,369

3.1%

33

Japan

35,090

0.6%

 

Global Average

 

17.1%

 

BRIC average

 

10.0%

 

EU average

 

20.0%

To learn more, please contact your local UHY LLP professional.