From noodles to crisps: Global investment explodes as businesses brace for post-Covid era
Global companies, from noodle makers to semiconductor giants, are investing in new factories and machinery like they haven’t in years.
On the supply side, the blockages caused by the Covid-19 pandemic are forcing companies to invest in new production facilities; calls for a cleaner environment drive spending on electric vehicles, batteries and alternative energies; and the great semiconductor crisis sparked a wave of investment.
On the demand side, pent-up consumer spending is convincing policymakers that capital is worth spending – a sign that companies are embracing the prospects for a global economic recovery even as delta tension casts a shadow. Low interest rates and the stakes that they will stay that way are at the root of all of this.
Globally, corporate capital spending, or capital spending, will grow 13% this year, according to S&P Global Ratings, with growth in all regions and major industries, especially in semiconductors, retail, software and transportation. Morgan Stanley economists forecast global investment to reach 115% and 121% of pre-recession levels by the end of 2021 and end of 2022, a much faster recovery than previous downturns.
“A resumption of business investment is essential for long-term growth, as capital accumulation is essential for increasing productivity growth,” said Rob Subbaraman, head of global markets research at Nomura. Holdings Inc. “Once the unprecedented global political stimulus wears off, the world needs trade investment and structural reforms to support growth.
Examples of new spending are evident, from emerging markets to the world’s largest companies.
Nepalese conglomerate Chaudhary Group – whose products include noodles, snacks and drinks and supply to more than 35 countries – is expanding into Egypt to make noodles for the African market. The new factory will make one million packs of noodles per day, employ 500 people and cost around $ 10 million to develop, GP Sah, global head of the fast-moving consumer goods division, said in an interview. The company is also considering opportunities in Latin America. “We want to be a global noodle company,” he said.
Walmart Inc. announced in February that it would invest around $ 14 billion this year in areas such as supply chain, automation and technology, up from $ 10.3 billion the year before. “Now when we invest it seems very offensive,” CFO Brett Biggs said on a conference call with analysts Aug. 17. “It is as if we are improving our competitive position. It is very wide.
In the United States, business spending on equipment, structures and software averaged 13.4% over the year until the second quarter, the highest pace since 1984. Equipment spending alone was an average of 14.4% during the average year of expansion 2009-2019.
“Industrial markets are another of those markets that I think are in the early stages of recovery,” said Craig Arnold, CEO of Eaton Corp., whose products include clutches and brakes, during a conference call on August 3. “There has been relative underinvestment in the manufacturing sector over the past few years. And so we think the market should be doing well in 22 and really, quite frankly beyond. “
Europe is also expected to see a sharp increase in spending, with S&P Global Ratings predicting a 16.6% increase in 2021 – its best year since 2006. Business investment in the UK, which was suppressed by the exit from the country Union, also started to recover, but was still more than 15% below its pre-pandemic level at the end of the second quarter.
Working from home and the resulting boom in the digital economy have boosted demand for semiconductors, leaving a shortage that is reshaping investment in the sector. South Korea plans to spend around $ 450 billion, led by Samsung Electronics Co. and SK Hynix Inc., to build the world’s largest chipmaking base over the next decade.
In Japan, manufacturers facing the chip crisis are leading a resumption of capital investment. Rohm Co, a chipmaker whose customers include Toyota Motor Corp., Ford Motor Co. and Honda Motor Co., “makes significant investments” for next fiscal year in addition to 70 billion yen ($ 637 million) already set aside for the current year ending in March 2022.
“We will be too late unless we take preventative measures,” CEO Isao Matsumoto said in an August 25 interview. The Kyoto-based chipmaker has factories in China, Malaysia, South Korea, Thailand and the Philippines, as well as domestic factories. “The pandemic has presented us with various risks,” Matsumoto said. “We want to disperse our manufacturing bases.
Another dynamo is climate change, which is forcing companies to reorganize their operations as governments push through clean energy policies. According to BloombergNEF data, a record $ 174 billion was invested in solar power, offshore wind and other green technologies and businesses in the first half of this year, and much more is needed. to reduce carbon emissions.
The appetite for cleaner cars is visible in China, where the increase in marketing and R&D spending by several electric car makers in the last quarter was notable. Xpeng Inc. reported a larger-than-expected loss in part because R&D staff swelled to more than 3,000 as of June 30, an increase of nearly 50% from the start of the year.
Of course, the growth dividend depends on the achievement of promised spending.
There are fears that investments may lose momentum as consumer demand cools or a shortage of goods turns into a glut of supply once the acute phase of the pandemic has passed. Economists also say some of the investment might not be as productive as it looks, leaving some very promising jobs and factories looking more like hype than reality.
For now, companies are betting they have more to lose by not upgrading.
Longer-term investments will be driven by trends such as supply chain diversification or accelerated automation in the service sector as the workforce ages, according to Karen Harris, chief executive of the firm. Bain’s Macro Trends Group consulting firm in New York. “Many service-oriented businesses now have a no-regrets opportunity to invest for greater worker productivity today,” she said.
(With help from Zoe Schneeweiss, Vince Golle, Daniela Wei, Yoshiaki Nohara, Thomas Mulier, and David Goodman.)