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September 13, 2022

FDI in financial services in 2021: The state of play

By Glenn Barklie

Global greenfield foreign direct investment (FDI) in financial services grew by 8.6% in 2021 compared with an overall increase of 18.1% across all sectors, according to the Global FDI Annual Report 2022.

Our FDI Projects Database recorded 837 projects in financial services in 2021, up from 771 the year before. However, this increase was not enough to negate the sharp decline in financial services FDI projects in 2020. Project numbers in 2021 were still one-fifth lower than those in 2019.

Where are the leading destinations for financial services FDI?

Western Europe maintained its leading position when it came to attracting financial services FDI in 2021. The region accounted for 36.8% of all projects announced or opened globally. Western Europe recorded 308 inbound projects in 2021, ahead of Asia-Pacific with 231, and the Middle East and North Africa in third with 95.

Investments in the Middle East and North Africa witnessed the largest annual percentage growth of 58.3%. In fact, it was the only region to witness continued annual growth between 2019 and 2021. Compared with 2019, sub-Saharan Africa suffered the hardest decline, with new projects in the region dropping by 61.6% in 2021. Inbound financial services FDI was also heavily weakened in South America.

The UK topped the list as the leading destination country for inbound financial services in 2021. There were 86 projects announced or opened in 2021 bound for the UK, more than into the US, which ranked second. The UK is showing a V-shaped trend, having seen inbound financial services FDI plummet in 2020. The sharp recovery in 2021 reinstates the importance of London as the world’s leading financial services hub. Australia surpassed Germany to place third with 56 projects. Australia witnessed the highest annual percentage growth of any country (229%) in 2021, followed by the UK (153%) and Ireland (85.7%).

Singapore’s inbound financial services FDI fell by 30% in 2021, back to 2019 levels. This was after having witnessed a stark increase in financial services FDI in 2020, bucking the global downward trend. France (-26.2%) and the US (-23.2%) also experienced notable annual declines in 2021.

The US was the leading country when it came to investing in the UK. Almost three-quarters of US company investments in the UK where destined for London. US companies created 22 projects in 2021 in the UK. Germany, France and Ireland were other popular source markets. The investments were mainly in financial services subsectors related to wealth management, investment management and investment banking.

US-based investment bank Raymond James was the leading investor in the UK in 2021. The company opened wealth management branch offices in Cheltenham, Cheshire and London. Germany-based investment bank Berenberg Gossler created one of the largest FDI projects in the UK in terms of job creation. The company announced plans to hire 40 graduates in London, taking its total London-based headcount to 500 people.

What are the top subsectors for financial services FDI?

Retail and commercial banking and insurance and reinsurance activities ranked as the joint-top subsectors for financial services FDI in 2021, with 155 projects each. Insurance and reinsurance activities registered a 61.5% increase in inbound FDI from 2020 levels, with most investments destined towards the UK. In contrast, retail and commercial banking witnessed a decline of 11.4% in inbound FDI in 2021 when compared with 2020 figures. It had been the outright leading subsector in both 2019 and 2020.

Meanwhile, cryptocurrency saw the largest percentage growth of 223.5% in inbound FDI across the three-year period from 2019 to 2021. This is largely due to the boom and maturity in crypto markets, the acceptance of crypto as an alternative investment and the development of crypto infrastructure, all of which resulted in outperformance for this asset class, with total market cap growing by 187.5% in 2021, according to the World Economic Forum.

Spain-based banking institution Banco Santander announced one of the sector’s largest capital investments in 2021. The company outlined plans to invest $177.4m to open its new headquarters in Milton Keynes in the UK. It plans to consolidate its six main locations across the country, with Milton Keynes becoming its new corporate headquarters. Also, US-based investment bank Goldman Sachs was one of the leading financial services job creators in 2021. In July, the company announced plans to hire 2,000 people at its newly opened office in Hyderabad, India. The new centre will become a hub for engineering and business innovation in India.

Where are the leading financial services investors located?

The US remained the top source of financial services FDI throughout the three-period since 2019. US companies created 206 outbound projects in 2021 – 29.6% more than in 2020. In fact, US outbound financial services FDI in 2021 was 5.1% higher than in 2019, pre-Covid-19.

The UK was the second-largest financial services source market. UK companies created 12.2% more FDI projects in 2021 compared with 2020, while France ranked third, recording a significant annual increase of 44.8%.

Germany and Hong Kong, both of which exhibited sharp annual declines in 2020, witnessed a V-shaped recovery in 2021, with outbound investments returning to similar levels to those in 2019.

On the other hand, Spain and Japan saw large drops in outbound financial services FDI in 2021. The number of projects fell by 51.5% and 71.8%, respectively.

Within the top ten countries, the Netherlands and Singapore showed the largest annual growth. Netherlands-based companies created 27 projects in 2021, a growth of 145.5%, while Singapore-based companies created 21 outbound projects – 90.9% higher than in 2020. However, it should be noted that both countries are yet to see outbound financial services FDI return to pre-Covid levels.

Who are the leading financial services investors?

JPMorgan and Goldman Sachs were the leading financial services investors in 2021. JPMorgan created 14 projects while Goldman Sachs forged ten new investments. Both companies showed an increase in FDI activity in 2021 compared with 2019 and 2020.

JPMorgan was focused on investment banking and retail and commercial banking projects in 2021. Most projects were concentrated in western Europe (seven) and Asia-Pacific (six). The company opened a new trading hub in Paris with plans to employ 800 people by the end of 2022.

Meanwhile, Goldman Sachs’s investments were more targeted towards Asia-Pacific. The firm opened new offices in China, Hong Kong, Singapore and India and announced plans to relocate its Japanese headquarters to a new tower in Tokyo.

Overall, FDI in financial services in 2021 steadied, trying to regain lost ground from declining project numbers during the 2020 Covid-19 crisis. However, future growth expectations are rather subdued as inflation is rising sharply in Western economies. Central banks are resorting to significant increases in interest rates to counter soaring inflation. There are rising concerns that developed markets such as the US and Europe could slide into recession, which would have a knock-on effect on global FDI. Looking ahead, although we do not expect financial services FDI to crash as harshly as it did in 2020, it is some way off returning to its pre-Covid levels.

 Download the full Global FDI Annual Report 2022 here.

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