Investor Watch: July 07, 2022

Three new reports involving foreign direct investment (FDI) invite some data triangulation. First, the Tax Foundation on the last day of June called for an international tax agenda for Congress on the first anniversary of the global tax reform deal reached by 130 countries. The Foundation looks further back than that, to 2017, when international tax reforms in the Tax Cuts and Jobs Act (TCJA) “shifted how U.S. companies structure their investments abroad and have led to onshoring of intellectual property (IP).” In other words, even as the Build Back Better Act aims to further reform taxation, it’s worth looking at what was already accomplished by the TCJA.

“The first global minimum tax was adopted by the U.S. as part of the TCJA,” the Foundation’s Daniel Bunn writes, noting the aptly named “GILTI” policy (for “Global Intangible Low-Tax Income”) that changed the incentives for where multinationals invest or hold their assets. “Other important reforms included the reduction in the federal corporate tax rate from 35% to 21%, an incentive for holding IP within the U.S. (the Foreign Derived Intangible Income or FDII), and a disincentive for cross-border cost shifting (the Base Erosion and Anti-abuse Tax or BEAT),” Bunn writes. The graph above shows one of several positive effects: the drop in global outbound FDI to certain countries since the 2017 tax reform.

Yesterday, the U.S. Bureau of Economic Analysis released data on U.S. inward FDI in 2021 (including acquisitions as well as greenfield establishments and expansions). Total expenditures came to $333.6 billion (preliminary), an increase of $192.2 billion (136%) from $141.4 billion (revised) in 2020, and above the annual average of $289.7 billion for 2014–2020. “Greenfield investment expenditures — expenditures to either establish a new U.S. business or to expand an existing foreign-owned U.S. business — were $3.4 billion in 2021. For greenfield investment initiated in 2021, total planned expenditures until completion, which include both first-year and future expenditures, were $15.6 billion,” the BEA said. Texas led all states in total inward FDI ($0.9 billion). Pennsylvania had the largest employment resulting from new investment (44,700), followed by California (43,600) and New York (14,500), the BEA stated, before noting the odd attribution of such jobs: “Employment for an acquired entity that operated in multiple states is attributed to the state in which it had the greatest number of employees.” The graph below shows total inward U.S. FDI by year going back to 1999.

A third source provides further context: Harry Moser’s Reshoring Initiative on May 31 released its latest report on total reshoring and FDI in 2021, concluding that job announcements from both involved a record 261,000 jobs from more than 1,800 companies, “bringing the total jobs announced since 2010 to over 1.3 million.” For the second year in a row, the report said, reshoring exceeded FDI by 100%, in contrast to 2014 thru 2019 when FDI exceeded reshoring.” Among the findings: Reshoring from Asia is about 10 times that from Western Europe. And Texas led all states in jobs announced, followed by Tennessee. — Adam Bruns

AFIRE, the Association for International Real Estate Investors focused on commercial property in the U.S., in May released the 2022 edition of its annual international investor survey, “Marching Backwards Into the Future.” Among the findings, institutional commercial real estate investors rate actionable climate change strategies and carbon footprint reduction measures as extremely important criteria, and the vast majority of these investors say they are willing to accept lower returns on their investments in exchange for environmental benefits. The graph shows AFIRE members’ top U.S. cities for planned investment, led by Atlanta, Austin and Boston.

As vacationers hit the road this summer fully aware of how the high price of gas might limit their plans, this photo accompanied a recent release announcing the completion of a NextGen Highways Feasibility Study for the Minnesota Department of Transportation by The Ray and NGI Consulting. Its focus? The strategic co-location of high-voltage direct current electric transmission lines and communications infrastructure in the highway right-of-way. The group called it “a first step for the NextGen Highways team as it works to reimagine the nation’s highway system on the heels of the passage of the Infrastructure Investment and Jobs Act (IIJA) of 2021 and the federal government’s historic infrastructure investment.” In April 2021, the two organizations explained, the Federal Highway Administration released guidance clarifying the highway ROW “can be leveraged by State DOTs for pressing public needs relating to climate change, equitable communications access, and energy reliability.”

“To support clean vehicle electrification, our existing transportation infrastructure will need to evolve to incorporate the infrastructure to power and connect these vehicles,” said Laura Rogers, deputy director of The Ray, the nonprofit charity and net-zero highway testbed named for the late green business advocate Ray C. Anderson and located on 18 miles of I-85 between LaGrange, Georgia, and the Georgia-Alabama state line. “This feasibility study demonstrates that states can use existing publicly-owned land to help solve our Nation’s greatest and immediate challenges in the energy, transportation and communications sectors.”