Growth Industries in a Tough Global Economy
As we put 2022 behind us and start the first part of 2023, we’re all trying to make sense of what just happened and what will happen in the coming 340 days. Reports are being released, predictions are being made, and companies and investors are putting their money where their mouths are.
We’re here to add our own insights to the commentary about the year that was and the year that will be. We’ll summarize a new report from the Economist Intelligence Unit and highlight five sectors that economic developers should keep an eye on as you continue to do your best to draw exciting new opportunities to your region.
ISLANDS OF GROWTH IN A ROUGH SEA
As you comb the field for FDI opportunities tailor-made for your region, you may wish to take note of any developments in these five subsectors: manufacturing, metaverse tech, life sciences, fashion, and electric vehicles. Some exciting things are happening there.
MANUFACTURING: FDI OPPORTUNITIES FOR ECONOMIC DEVELOPERS
The manufacturing industry isn’t immune to the macroeconomic and geopolitical challenges facing the world. Supply chain disruptions, increased wage costs, and economic volatility will all be tough to deal with. Luckily for economic development professionals based in the highly developed North American and European markets though, the proposed solutions to some of these problems lie with re-investing in local manufacturing capacity.
For example, foreign direct investment in the US spiked in 2021, driven in large part by the manufacturing sector, which brought tens of thousands of new jobs to the country. Investments were especially strong in California, Massachusetts, and New York:
In addition to the large pool of highly skilled and educated labor capable of designing, implementing, and operating the advanced technologies that run contemporary smart factories, US jurisdictions can rely on the influence of the recently passed CHIPS and Science Act of 2022 to spur additional interest.
Already, GlobalFoundries and Qualcomm have announced a major expansion of their semiconductor manufacturing facility in the state of New York. Micron has also pledged over $100 billion over 20 years in investment in the same state for their own chips.
VR/AR/METAVERSE TECH
While still in its infancy, metaverse technology will continue to attract heavy investment from both major enterprises and smaller startups competing to get in on the ground floor of what many believe will be the next stage in the evolution of the internet. Meta, previously known as Facebook, has gone all-in on the metaverse, going as far as changing its name to focus on its new mission of being the first company to make major inroads in the subsector.
Different regions have taken different approaches to attracting investments in this area. Seoul, South Korea, for example, has created a smart city policy bureau that’s implementing a 5-year plan to create a metaverse business services portal, education portal, virtual tourism services, and digital festival and museum exhibits. The hope is to create the infrastructure for new augmented and virtual reality services powered by a mix of public and private enterprises.
On a similar note, the Dubai Metaverse Strategy aims to make that city a hub for metaverse development in five key areas: tourism, education, real estate, retail, and government services. The stated goal of the strategy is to support the creation of 40,000 new virtual jobs and to add $4 billion to the city’s GDP by 2030.
THE LIFE SCIENCES
This category captures a wide variety of subsectors, from biopharmaceuticals to wearable medical device manufacturing. A recent article by Deloitte Consulting LLP contains optimistic projections for growth in the medtech industry in 2023, buoyed by a strong 2022. That’s despite the drag on the industry created by high inflation, supply chain disruptions, and other economic and operational challenges.
Regions already participating in what’s become known as the “blue economy” – especially in the marine biotechnology subsector – will find natural overlap between the life sciences industry and local economic activity. This overlap could become even more important when one considers that difficulty finding sufficiently educated and trained talent remains one of the primary obstacles life sciences companies are encountering.
FASHION
The fashion industry faces the same pressures as every other sector on this list. An unstable geopolitical arena, supply chain uncertainty, and high inflation combine to put major and minor players alike on shaky ground. Like with manufacturing, however, it is in the industry’s response to these pressures where economic developers (at least in North America, the Middle East, and the Asia-Pacific region) can find solace.
A comprehensive report by consulting giant McKinsey & Co. details an expectation by many in the industry that expansion, especially into the aforementioned regions, is likely in 2023.
And companies choosing new or familiar regions for expansion or relocation are considering more than just the solidification of supply chains and availability of talent. From page 32 of the report:
“For fashion executives, the politicization of the private sector adds a new dimension to how and where they focus on growing their businesses globally. Decisions about whether to invest in a country or region can no longer be confined to its economic potential. Today, fashion leaders should consider the social tensions and political uncertainties that can obstruct business operations or escalate reputational risk.”
Sentiments like these would seem to place economic developers from developed democracies in an excellent position, as they work from regions with relatively stable, secure, and peaceful governments and reasonably positive human rights records.
ELECTRIC VEHICLES
While the automotive industry as a whole isn’t expected to grow very quickly in 2023, the electric vehicle (EV) subsector is an exception to that trend. EV sales are projected to grow significantly around the world:
North American economic developers can look forward to the continued impact of the CHIPS and Science Act of 2022 and the USMCA free trade agreement, which combine to incentivize the purchase of electric vehicles finally assembled within North America. Additionally, EV manufacturers facing supply chain vulnerabilities may seek to nearshore the production of key components, including semiconductors, increasing the willingness of the manufacturers of these components to relocate to or expand into North America, Europe, and other advanced, western economies.
Along with opportunities in the development of EV Batteries and local charging networks and the infrastructure required for advanced self-driving technology, the EV industry should keep economic development professionals plenty busy into 2023.
INDUSTRY OUTLOOK 2023: CHALLENGES, OPPORTUNITIES, & TRENDS
The Economist Intelligence Unit (EIU) released its annual industry report recently, entitled Industry Outlook 2023: Challenges, opportunities and trends to watch in seven sectors, the report is a bit of a downer. Not “the sky is falling” dark but it certainly doesn’t make for uplifting reading. It’s always one of the many year-end reports we analyze. It’s a must-read, though, for anyone interested in which direction the global economic winds are blowing these days.
The TL;DR of it all is that high inflation, a war of aggression in Ukraine, and the effects of the ongoing Covid-19 pandemic will combine to reduce economic growth and opportunity in a wide range of sectors and regions. While there are exceptions to the overall trend (example: the many growth sectors we mentioned above) – the gist is that the seven sectors covered by the report (automotive, consumer goods and retail, energy, financial services, healthcare, tech, and tourism) will experience significant headwinds.
That’s not to say that the news is all bad. The authors predict significant growth in the 2023 tourism industry. Several technologies are expected to attract high levels of investment, including metaverse products, web3 tech, and artificial intelligence. Nuclear energy may make a comeback (and we’ve shared in the past), as an energy crunch in Europe forces countries on that continent to reconsider their energy strategies. And investments in renewable energy, including solar and wind projects, are projected to increase.
By now, you may have noticed some repeating topics. In our view, the combination of the passage of the CHIPS and Science Act of 2022, the USMCA, and the re-emergence of major geopolitical risk to supply chains and organizational reputation, will all create major opportunities for economic developers in North America. But the opportunities aren’t limited to those operating in North America. Western European economic developers can also offer impressive talent availability, stable regulatory regimes, and democratic governments. Further, those countries that are expressly and implicitly challenged by the new legislation coming out of the US (like China), will undoubtedly respond with their own subsidies and supports for a variety of industries. Amongst all the challenges, silver linings await those seeking them!