General views on the global economy are mixed, and mostly influenced by macroeconomic and geopolitical uncertainties, as well as the opportunities and challenges of the sustainability transformation. On an economic level, inflation peaked in late 2022. In the course of 2023, due to vigorous monetary policies where we saw interest rates increase at the fastest pace in decades, the inflation gradually came down for most of the developed economies. The true effects of the rate hikes and reduced consumer spending are expected to weigh in on the global economic performance in the course of 2024. In the most recent version of the World Economic Situation and Prospect Report, the UN warns of gloomy economic growth perspective for both developed and developing countries, whereby global growth is expected to continue below the pre-pandemic rate. Regional nuances and differences will to a large extent determine the impact and the optimism towards the FDI flows for the new year. 

This article is written by Alim Abasia ([email protected]) and Hans van Loenen ([email protected]). Alim and Hans are both senior consultants and part of RSM Netherlands Business Consulting Services with a specific focus on International Trade & Strategy.

A major deciding factor in the outlook for 2024 is the (outcome of) current geopolitical uncertainties. Geopolitical tensions are at their highest after peaking in early 2022. The conflict in Gaza, the war in Ukraine, territorial claims across the world and the strained (trade) relationship between the U.S. and China raise concerns to the immense worldwide economic integration. For the first time since records began, the FDI in China falls to lowest level. Fragmentation on a geopolitical level poses a risk to companies operating internationally. To mitigate this risk, businesses are increasingly looking at or engaged in reshoring of production processes, creating (new) FDI flows and creation of (re-)localized production hubs. Due to current challenges in the Red Sea leading to companies rerouting shipping, we expect this trend to continue and even increase in pace.

Businesses are supported by sector specific support and legislation being implemented on a regional level (e.g. the European Chips Act) in an endeavor of these regions to bolster local competitiveness and decrease dependencies on foreign parties. Another example is the gradual implementation of the Carbon Border Adjustment Mechanism (CBAM) as of October 1st, 2023. This new regulatory tool is aimed at both protection of the EU internal market from unfair competition encompassing a range of products, as well as promoting a reduction in emissions in production processes of these and related products. For 2024, we expect more and more sustainability related obligations entering the EU regulatory framework. 

Local perspectives

Focusing attention on the Netherlands, a country that has been on the forefront of both inward and outward foreign direct investment for many years, we see a similar mixed outlook. Although the IMD World Competitiveness Center has reconfirmed the Netherlands to be one of the most competitive economies in the world (5th out of 64 countries measured), recent developments suggest that the country is becoming more inwardly focused. Changes in the political climate and legislative decisions are posing a threat to their position in the global market.

After the early general elections (mid-November 2023), a combination of center-right parties, including the anti-EU Freedom Party (PVV) have been engaged in coalition talks. The outcome is still uncertain, however a strong-right wing and Netherlands-centric block in parliament is a certainty. An example is the adoption of the Dutch Tax Plan Package 2024, in which a further cut in the expatriate tax facility was included. With the global labor market remaining relatively tight, this ruling is one of the Dutch measures in the war for talent for attracting specialists from abroad. The Netherlands continues to be considered by many as the ‘Gateway to Europe’. It’s strategic location, well-connected sea- and airports and open economy are crucial factors for international businesses in deciding for the Netherlands as their point of entry onto the European market.

In this respect, it must be expressly noted that the above relates to actual businesses with actual business activities in the Netherlands. The historical practice of multinational companies of establishing solely a holding company in the Netherlands e.g. enabling tax planning, has been under increasing scrutiny. As a result of ATAD3 and Pillar 2 these practices are becoming increasingly outdated and progressively ineffective. These holdings are in many instances subject to increasing compliance obligations, such as the Corporate Sustainability Reporting Directive (CSRD). 

Forward thinking 

In summary and considering the challenges presented above, we expect the directional shift in FDI flows to continue. Businesses are looking to diversify their operations and mitigate the risks in the light of increasing global political and economic tensions. Against this backdrop, and depending upon further developments, we will likely see FDI in- and outflows within trade blocs of political ‘friends’, rather than being directed to their economically most efficient location. This is an important change. The deep uncertainties listed above pose a great challenge to both policy makers and business leaders. More than ever, we urge FDI decision makers to invest in an understanding of both the current environment and scenarios that may occur. A tumultuous year is ahead, both for the developed and emerging markets, with all its risks and challenges. For an uncertain future, resilience is the key. 

RSM is Thought Leader in the field of International Trade and Strategy. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of regulatory obligations and practical applications in working with our customers. If you want to know more, please reach out to one of our consultants.