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BEYOND20


sive pandemic disruption and the aggravated geopolitical rivalry will drivemultinationals to diversify and reshoring or near-shoring their GVCs to be more shock-resistant and less reliant on foreign sources.


Combined, these five mega-forces will drive


GVC transformation in the decade ahead. They will fundamentally alter the way firms across industries design and operate their global value chains, affecting where they locatewhich type of activities, how they distribute value-add over their networks, and howthey transmit practices to actorsalongtheir valuechains.Global patterns of investment will change as a result, as will their potential impact on economic growth, employ- ment creationandsustainable development.


Six broadtrends in the future investment landscape In light of the five driving forces, six broad trends in the future GVCs and FDI landscape can be foreseen, up to 2030:


• Shorter and less fragmented manufacturing value chains,which will lead to a decline in the global trade of intermediate goods of GVCs, an increase in trade of final products (the shift from combustion engines to electrical vehicle manufacturing is a case in point). • More platform-driven value chain govern- ance by tech multinationals, withforeign-asset- light business models, i.e. more non-equity modes of cross-border operations. • A shift of value chains fromthe global to the regional and sub-regional level, which will gen- erate downward pressure on global efficiency- seeking FDI, in favour of regional market-seek- ing FDI.GVCdiversification driven by resilience building and national security concerns will result in more redundancy in multiple geo- graphical locations. • A shift frommass-production and economies of scale to mass-customisation enabled by smaller-scale distributed manufacturing, resulting in more concentrationof value-add in individual locations, such as 3D printing. •Rapid growth and more fragmentationin ser- vice value chains, leading to more service FDI via offshoring (‘white collar’ services) and ser- vicification. This will be effectively driven by the new industrial revolution, but somewhat hampered by rising protectionism. • A boost for FDI in the green and blue econo- mies by the global drive for achieving SDGs, with more sustainable infrastructure-driven and public services-oriented FDI. • A substantial shift in investment promotion strategy.


The five major driving forces highlighted


earlier will also reshape the global investment policy space, and business ecosystems in gen- eral, in terms of norms, strategies, rules and regulations, as well as administrative practices. The big question as to where global trade


and investment policy is heading in the 2020s is still unanswered, but a new dichotomy in policy direction is emerging.Weare entering a decade of deglobalisation and the main- streaming of sustainability. The two policy trends are somewhat incompatible. The for- mer leads to further fragmentation of the global market and erosion of multilateralism, while the latter depends on the establishment of global standards, global governance and global partnerships. Confronting the challenges and harnessing


the opportunities arising from the new dichot- omy and the future directions of global FDI require a new investment development path. The reorientation of investment policy and pro- motion strategy includes:


• Broadening export-led strategy which extends to investment in production for regional markets and subregional industrial clustering. • Attracting diversified investments based on the flexibility and resilience of GVCs. •Intensifying efforts to promote investment in green and blue economies, as well as sustaina- ble infrastructure and public services.


In conclusion, over the past two decades,


the promotion of export-oriented manufactur- ing investment has beenat the heart of develop- ment and industrialisation strategies of most developing countries. Investment geared towards exploiting aspects of production, resources, and low-cost labour will remain important, but the pool of such investment is shrinking. A degree of rebalancing towards growth based on domestic and regional demand and on public services and infrastruc- ture, as well as on the green and blue economy, will be a newpath forward.■


James Zhan is senior director of the Investment and Enterprise division at the United Nations Conference on Trade and Development (Unctad). He is the editor- in-chief of the World Investment Report and the Transnational Corporations journal.


COMMENT


WEARE ENTERING ADECADE OF THE MAINSTREAMING OF SUSTAINABILITY


December 2020/January 2021 www.fDiIntelligence.com 41


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