The widespread disruption caused by the COVID-19 pandemic is challenging the ability of developing countries to meet the Sustainable Development Goals. Mukhisa Kituyi, secretary-general, United Nations Conference on Trade and Development, calls for a reboot to global investment that ensures they can get back on track
SARS-CoV-2, the virus strain that causes COVID-19, has created a global human catastrophe and triggered an economic crisis that will eclipse the scale of the global financial crisis of 2008. Workplaces have had
to close, trade has suddenly contracted and investment decisions by firms have been suspended, all leading to rapid rises in unemployment
and precarity, with severe strains on society. Developing countries – about 85% of the world’s population – remain the most vulnerable to the economic impacts of the virus.
COVID-19 is exacerbating a larger crisis for the planet, and especially developing countries: their ability to meet the Sustainable Development Goals, including rapid action on climate change. The United Nations Conference on Trade and Development estimates that, even before COVID-19, developing countries faced an annual financing gap of at least $2.5 trillion to achieve the SDGs. The contribution of investment to the SDGs could be significantly reduced as a result of the widespread disruption and demand shock caused by the pandemic.
UNCTAD’s latest findings reveal that COVID-19 will cause a dramatic drop in global foreign direct investment flows. The downward pressure on FDI could be as much as –40% during 2020 and will continue in 2021, meaning that global FDI flows will likely reach their lowest level of the past two decades. Global cross-border mergers and acquisitions are on course for a 50% decrease from last year’s levels.
Prospects on hold
With investment prospects on hold and production stoppages in most economies, the economic shocks stemming from the pandemic have been passed along global value chains to suppliers and dependent businesses in the formal and informal sectors. Given the importance of cross-border production networks for international trade, there has been a precipitous drop in trade, which the World Trade Organization forecasts could fall by 32% this year. However, as the public health dimension of the crisis has deepened, the severity of mitigation efforts and lockdowns implemented by countries is having devastating effects on all economies, independent of their links to global supply networks.
If the substantial support packages to mitigate the demand shock of COVID-19 prove effective, investment recovery could be relatively quick when delayed projects are brought back on stream. However, the negative impact of the pandemic on investment linked to global production networks could be more durable. The COVID-19 outbreak risks accelerating pre-existing trends of decoupling and reshoring driven by the desire on the part of multinational corporations to make supply chains more resilient and the desire on the part of policymakers to protect critical industries and technologies.
Effects on investment policy
The investment policy response to COVID-19 has so far been split between supportive measures aimed at safeguarding foreign invested firms and protective measures for public health reasons, or to prevent sell-offs of companies hit by the crisis. Most of the proposed stimulus and recovery packages include investment support measures. UNCTAD’s latest investment policy monitoring, covering the period up to February 2020, reveals that 75% of policy measures taken during the review period remain favourable to investment. However, the analysis notes that COVID-19 will have wide-ranging impacts on investment policy.
Global production networks are engines of economic development and inclusive growth. They are lifelines for people around the world, through the provision of goods and services as well as incomes. The global pandemic is causing severe short-term disruption and possible lasting damage. The key challenge going forward will be coordinating global efforts to resuscitate global supply chains and production networks by facilitating FDI and trade.
The world came together to coordinate action on the global financial crisis a decade ago, but the reaction to COVID-19 has been largely on a country-by-country basis with little global coordination. Collaboration is beginning among private-sector actors, but similar cooperation is needed among governments. The G7 is one forum that can promote this level of coordination. We hope that UNCTAD’s own World Investment Forum, scheduled for December, will be one of the first high-level multi-stakeholder meetings promoting collaboration on investment following the crisis. These forums are essential for rekindling investment support measures.
UNCTAD stands ready to support the G7 and other global groupings in their efforts to mitigate the economic crisis caused by COVID-19, reboot global investment and ensure the world gets back on track to meet the SDGs by 2030.