1. The correlation between interest rates and FDI
Interest rates impact FDI because high interest rates mean debt becomes more expensive. Expensive borrowed capital may lead to borrowers being discouraged due to higher costs. As the cost of greenfield projects increase, less foreign investors may pursue an interest or wait until the cost of debt decreases, when the project may become more affordable to complete, and yield a higher return of investment. Currently, interest rates are at record highs globally to stem inflation which is also at record breaking levels.
One major source of FDI is expansion of existing projects. With higher interest rates and higher financing costs, extension or increased investment may not be viable or paused until the cost of debt decreases.
Interest rates are expected to decrease in 2024.
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2. Turkey wants Tesla
Image Tesla Factory by Maurizio Pesce via Wikimedia Commons
Turkey has won 4 FDI deals this August from BASF, Seawind Catamarans, WEG and Böllhoff.
Turkish President Erdogan’s re-election was only won by a fine margin due to a perception that he did not react appropriately to the earthquakes earlier in the year. Now Erdogan is keen to succeed with his administration and is reportedly trying to improve relationships with Saudi Arabia and the United Arab Emirates.
Erdogan recently visited New York in the US and met with electric car manufacturer Tesla’s MD Elon Musk and apparently asked him to set up a factory there. Some Tesla manufacturers are already based in Turkey.
Electric vehicle FDI projects are usually high value, add value to the country they are in, provide jobs and sit well with Turkey’s green approach.
Tesla has factories in Canada, China, Germany and the Netherlands and an upcoming one in Mexico. India is generally considered as the leader in the race for the next gigafactory with the decision to be made by the end of 2023.
Erdogan also invited Musk to Teknofest https://www.teknofest.org/en/ an event on technology to be hosted in Izmir later in September.
3. Canada Mexico trade up
Image Mexico City by City Clock Magazine
Canada is planning $10 billion worth of projects in Mexico, announced by the president of the Canadian Chamber of Commerce in Mexico (CanCham) at the recent CanCham23 event.
Canada is the top investor in Mexico second only to the US. July was the third anniversary of the US Mexico Canada trade deal that facilitates trade in the region, that replaced the old deal Nafta.
Canada exported $7.14 billion to Mexico in 2021. The top exports were rapeseed oil, cars and petrol.
In the same timeframe Mexico exported $17.4 billion to Canada, top exports were cars and trucks.
Mexico has recently replaced China as the US’ largest trading partner with 15% of imports last month over China’s 14.6%.
4. Making the most of trade missions
Trade Horizons e-mobility trade mission to Ohio
Trade Missions come in a variety of shapes and sizes. Usually, a group of business leaders will be funded by the Government to go on an export mission to another country to understand the commercial and legal ecosystem, make new business contacts, and assess the opportunities to export to that country. A trade mission is an excellent way to approach new markets, facilitated by a structured agenda with targeted business meetings and learnings, condensed into a 4 or 5 day visit.
Delegates have an opportunity to hear from industry leaders about pitfalls and opportunities in the country, ask questions and engage in meaningful discussion about the impact of certain legal or regulatory rules, get an overview of how the country operates, build relationships with potential business partners and understand / make decisions on the market for themselves based on first hand experience.
In addition, as trade missions are usually arranged for a group of people working in the same sector from the same country, meeting and networking with peers offers another way to engage and share market trends and knowledge, as well as potentially build business relationships. Often, companies will not do exactly the same thing and there is a chance to collaborate with other delegates attending the mission.
Trade Horizons has recently hosted business trips in e-mobility, photonics, aerospace and hydrogen to the UK and US. Contact us to find out more about making your next trade mission a success!
Featured image Image Bank of England by George Rex via Flickr
