A spike in ambitious plans by renewable energy and battery producers shaped the investment matrix in the first half of this year, while oil and gas re-entered the top 10 recipient sectors for foreign direct investment (FDI) amid an ongoing global energy crisis.
Between January and June 2022, foreign investors announced investment projects worth more than $402 bn, according to the latest figures from fDi Markets. This is the largest total capital expenditure (capex) recorded since the second half of 2019, before the Covid-19 pandemic, when total announced FDI stood at $434 bn.
Much of this investment came from the 48 mega-projects — investments with at least $1bn of capex — announced in the first half of the year, which marks the highest numbers of mega-projects announced in a six-month period for the last 14 years.
According to fDi Markets, H1 2022 top sectors for foreign investments include:
1. Renewables – $90 bn
2. Oil & Gas extraction – $33 bn
3. Semiconductors & other electronic components – $32 bn
4. Software and IT services – $31 bn
5. Electronic components (batteries) – $25 bn
6. Transportation and Warehousing- $24 bn
7. Communications – $21 bn
8. Automotive – $20 bn
9. Real Estate – $15 bn
10. Metals – $11 bn
Renewables take the lead in FDI attraction
Renewable energy producers set in motion the largest number of mega-projects in the first half of 2022 worth a total capex of $48bn. Several major investments were announced into hydrogen and ammonia production. In general, the number of renewables mega-projects in this six-month period is higher than any other previous full-year total since 2003.
In the first half of 2022, overall greenfield FDI in the renewable energy sector reached $90 bn, as capex dedicated to wind projects jumped by 180% compared to the same six-month period of 2021, fDi Markets figures show.
Battery projects developments
Investments into the electrification of transportation were particularly strong too. A record-breaking figure of almost $20bn was pledged to battery projects in H1 2022, marking an increase of 167% from the same period a year earlier.
In northern Germany, Swedish battery maker Northvolt AB unveiled plans to build a €4bn ($4.2bn) gigafactory. Italian battery cell company Italvolt Spa also announced plans to invest $4bn into a lithium-ion battery plant in the US state of California.
Fossil fuels rejoins top FDI sectors
The first six months of 2022 saw a strong rebound in fossil fuel investment, reversing the decline trend seen in recent years. The unprovoked invasion of Ukraine by Russia, which was the world’s largest exporter of oil and natural gas in 2021, has sent energy prices soaring.
The International Energy Agency (IEA) expects global net income from oil and gas production in 2022 to be nearly $2tn higher than in 2021. Goldman Sachs Group Inc. forecasts that primary energy capex will grow by 60% to $1.4tn by 2025. Amid this windfall, global FDI into oil and gas extraction topped $27bn in the first six months of the year, an almost tenfold increase from the same period of 2021.
Semiconductor industry
Meanwhile, semiconductor companies continued their investment plans as they aim to address the ongoing chip crunch. The most capital-intensive FDI project tracked in the first half of the year was plans US Intel Corporation for its facility in Leixlip, Ireland. The chipmaker will invest €12bn ($13.4bn) to double the facility’s manufacturing space and create 1600 new jobs.
Overall, the semiconductor sector attracted $31.6bn of FDI in the first half of the year, marking a 34% decrease from a year earlier, but well above full-year totals recorded before 2021.
Transportation services
Supply chain disruption caused by changes in consumer habits and lockdowns during the pandemic were also reflected in FDI figures. A total of $13bn was pledged to freight and distribution services, as companies expanded capacity to reduce bottlenecks in the processing and movement of cargo.
Conclusion
Over the last decade, the world itself and Ukraine, in particular, has achieved significant results in the development of renewable energy sector. According to the Ukrainian Association of Renewable Energy (UARE), the capital investment in renewable energy in Ukraine amounts to over 12 billion dollars. The share of RES in the energy balance of Ukraine should have reached 9% by the end of 2022. Despite the fact that due to Russia’s war against Ukraine, half of Ukrainian RES facilities are now under threat of complete or partial destruction, Ukraine still has a great investment potential in terms of renewables once the war ends.
In general, the global market for battery production has great prospects for development due to the existing high demand of the automotive sector and a shortage of supply. And here there are opportunities for Ukraine. Although lithium is currently not produced in Ukraine, there are significant lithium reserves and deposits in the Zaporizhzhia, Donetsk, and Kirovohrad regions. In addition to lithium, the production of batteries also requires cobalt, the reserves of which have also been explored in Ukraine (Kirovohrad, Zhytomyr, and Dnipropetrovsk regions).
Given the growing global demand for electric batteries, the presence of a significant consumer market and proximity to the European market, as well as global trend of supply chains localization, lithium deposits development and lithium-ion batteries manufacturing in Ukraine can become an attractive investment project after the war ends.
Alongside with global trends, one of the most promising and progressive sectors in Ukraine in terms of FDI is IT industry. In the first quarter of 2022, the IT sector provided a record 2 billion US dollars in export earnings. That is, despite the war, the export of computer services increased by 39% compared to Q1 2021, which indicates the stability and adaptability of the IT industry and the presence of a strong human resources potential in Ukraine.
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