World Capital Spending Booms As Firms Put together For The Publish-Pandemic Period –

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New Delhi: Global companies, from noodle makers to semiconductor giants, are investing in new equipment and machinery in ways that they haven't done in years.

On the supply side, the blockades caused by the Covid-19 pandemic are forcing companies to invest in new production facilities; Demands for a cleaner environment are driving spending on electric vehicles, batteries and alternative energies; and the great semiconductor crisis triggered a wave of investment.

On the demand side, pent-up consumer spending is convincing executives that capital is worth spending – a sign that companies are latching on to the prospects for global economic recovery, even if the delta burden casts a shadow. It's fueled by low interest rates and betting that they will stay that way.

Global corporate capital expenditures will increase 13% this year, according to S&P Global Ratings, with growth in all regions and broad sectors – particularly in semiconductors, retail, software and transportation. Morgan Stanley economists predict that global investment will hit 115% and 121%, respectively, of pre-recession levels by late 2021 and late 2022, a much faster rebound than previous downturns.

“A rebound in corporate investment is critical to longer-term growth as capital accumulation is key to driving productivity growth,” said Rob Subbaraman, director of global research at Nomura Holdings Inc. World needs business investment and structural reforms to sustain growth. “

Spend, spend, spend

With rising inflation fears, looming central banks throttling, and ongoing supply chain chaos, the surge in capital spending offers a rare glimmer of hope for the global economy through 2022 and beyond. It is also a very different dynamic than the last global crisis of 2008, when austerity measures and weak investment weighed on jobs and wages for years.

Examples of new spending range from emerging markets to the largest companies in the world.

The Nepal-based conglomerate Chaudhary Group, whose products include noodles, snacks and drinks and supplies more than 35 countries, is expanding in Egypt to produce noodles for the African market. The new facility will produce a million packs of noodles per day, employ 500 people and cost around $ 10 million to develop, said GP Sah, global director of Fast Moving Consumer Goods, in an interview. The company also sees opportunities in Latin America. “We want to be a global noodle company,” he said.

Walmart Inc. announced in February that it will invest approximately $ 14 billion this year in areas such as supply chain, automation and technology, up from $ 10.3 billion last year. “If we invest now, it feels very offensive,” said CFO Brett Biggs on a conference call with analysts on August 17th. “It feels like we're improving our competitive position. It is very broad. ”

In the US, corporate spending on equipment, structures, and software averaged 13.4% for the year through the second quarter – the fastest growth since 1984. Equipment alone averaged 14.4% last year, more than that Double the 2009-2019 expansion average.

“Industrial markets are another one of those markets that I think are in the relatively early stages of recovery,” said Craig Arnold, CEO of Eaton Corp., whose products include clutches and brakes, on a conference call on Jan. August. “In the last few years, relatively too little has been invested in production. And so we think that the market should develop into '22 and, to be honest, beyond. “

Spending is also on the horizon in Europe, with S&P Global Ratings forecasting a 16.6% increase in 2021 – the best year since 2006 began to recover, but was still more than 15% below that at the end of the second quarter Pre-pandemic level.

Working from home and the resulting surge in the digital economy have driven demand for semiconductors and left a shortage that is reshaping investment in the sector. South Korea plans to spend around $ 450 billion over the next decade, led by Samsung Electronics Co. and SK Hynix Inc. to build the world's largest chip manufacturing base.

In Japan, manufacturers facing the chip crisis are leading a recovery in capital investment. Rohm Co, a chip maker whose customers include Toyota Motor Corp., Ford Motor Co., and Honda Motor Co., is making “major investments” for the next fiscal year in addition to the 70 billion yen (US $ 637 million) already earmarked for the current year -Dollar). The year ends in March 2022.

“We will be late if we do not take preventive measures,” said Chief Executive Officer Isao Matsumoto in an interview on August 25. The Kyoto-based chip maker has factories in China, Malaysia, South Korea, Thailand and the Philippines, as well as domestic ones. “The pandemic has presented us with various risks,” said Matsumoto. “We want to close our production sites.”

Another dynamo is climate change, forcing companies to retool their operations while governments enforce clean energy policies. According to data from BloombergNEF, a record $ 174 billion was invested in solar, offshore wind and other green technologies and businesses in the first half of this year, with much more needed to curb carbon emissions.

The appetite for cleaner cars can be seen in China, where the surge in marketing and R&D spending by several electric car makers in the last quarter was notable. Xpeng Inc. posted a higher-than-expected loss, in part because its research and development workforce increased to more than 3,000 as of June 30, an increase of nearly 50% from the previous year.

Of course, the growth dividend depends on the promised expenses.

There are fears that capital spending will lose momentum as consumer demand cools, or that a shortage of goods will turn into a glut of supply once the acute phase of the pandemic is over. Economists also say that some investment may not be as productive as it looks, which would make much-promised jobs and assets look more like hype than reality.

Right now, companies are betting that if they don't upgrade, they have more to lose.

Longer-term investments, according to Karen Harris, executive director of Bain's Macro Trends Group in New York, are driven by trends such as supply chain diversification and accelerated automation in the service sector as the workforce ages. “Many service-minded companies today have the ability to invest in increased employee productivity without regret,” she said.


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