The state of play: FDI in California

California has a strong track record when it comes to attracting FDI, and it will need to retain its high standing among foreign investors at it looks to recover from the Covid-19 pandemic. Lara Williams reports.

Foreign direct investment (FDI) will be a key factor behind California’s recovery from the Covid-19 economic crisis because of its strong correlation with job growth in the state.

FDI and foreign-owned businesses are major contributors to California’s employment health, according to GO-Biz’s 2020 FDI in California report in conjunction with the Los Angeles World Trade Center.

The report found that 19,000 foreign-owned firms were operating in California in 2019, representing just over 1.2% of all firms in the state. These firms employed approximately 731,000 residents, or 4.9% of the state’s workers, who earned $65.6bn in wages last year. The top source countries for FDI into California in 2019 were Japan, the UK, France, Canada and Germany.

Opportunities in a crisis

FDI in manufacturing represented the highest job creation of all the 84,451 jobs in California in 2019, at 13.5%. But in a year of flux, Los Angeles World Trade Center’s director of international trade Michael Smith says that despite slowing foreign investment flows, opportunities related to the pandemic are developing as international companies consider adding operations within the state in order to supply the US, and California specifically, with health-related technology and products.

“Attracting and supporting FDI from the [health-related technology and products] industry can create resilient economic structures that assist with the recovery phase and better prepare the state for future crises,” says Smith.

California’s recovery from the Covid-19 economic crisis is expected to mirror the US recovery, according to UCLA Anderson Business School, which forecasts a depression-like crisis in which the state’s economy will not return to its pre-recession 2019 fourth-quarter peak until 2023.

But signs of recovery include data released by the California Employment Development Department, which shows that the state’s unemployment rate stood at 14.9% in June 2020, which represents a gain of more than one quarter (26.4%) of the 2,625,500 non-farming jobs lost during March and April as a direct result of the Covid-19 pandemic.