FDI 42%

The drop in global FDI in 2020, a number that rises to 69% among developed countries. UNCTAD

countries like India, where FDI by wealthy Western multinationals has arguably pushed wages for skilled workers up by 10%. At the same time, foreign investment promotes domestic investment, and potentially even doubles it. This decline in FDI, in other words, risks slashing wages in some of the most deprived places on earth. As an example, FDI has been one main way of cutting poverty in Uganda over the last decade. If foreign taps dry up, though, poor Ugandans may suffer.

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Beyond the grave human consequences, where does all this leave FDI now, and over the next 12 months? You’d have to be brave to put money on anything these days, let alone something as sophisticated as FDI. Even so, there are plenty of reasons to remain pessimistic – beginning with vaccines. “According to recent reports, about 70 poorer countries will only be able to vaccinate one in ten citizens by the end of this year,” explains Toland. “As such, FDI is likely to take a backseat as fragile macroeconomic conditions will deter many investors. Until economic recovery is underway, many companies will continue to see their profit margins squeezed.”

Another problem is man-made. As Toland puts it: one factor that will “weigh on international investment is the growing number of investment restrictions in several markets, which indicates that geopolitics is becoming a significant FDI driver too”. To understand what he means, you only have to look at Germany, which recently expanded its rules against non-EU takeovers of healthcare companies. Australia is another example, with the Canberra government lowering the deal value threshold for a government review process of foreign takeovers from $1.1bn to zero. To put it another way, if the EU’s recent foray into vaccine nationalism is one example of how the world is putting up barriers, the increasing popularity of investment nationalism is another. “The increased regulatory scrutiny, coupled with economic uncertainty and fragility,” summarises Toland, “are likely to keep FDI levels depressed in 2021.” With mountains like these to climb, it’s no wonder analysts are already suggesting that FDI across 2021 will fall by between 5% and 10%. All the same, wallowing in hopelessness is likely unwise. After all, if coronavirus is an economic millstone, it’s also an excuse for governments to boost investment. That may create opportunities for savvy entrepreneurs, says Toland, with South Korea and Germany both encouraging funding for electric vehicles. China, for its part, has introduced a raft of measures to make FDI more attractive, with new rules covering everything from preferential land prices to lower corporate tax rates. That’s shadowed by similar efforts across the rich world, with France and New


Zealand just two of the countries promoting investment in renewable energy.

Not that courageous investors can merely spin a globe and throw money where it stops. On the contrary, Toland suggests it’s likely they’ll focus their efforts on markets where they’re guaranteed decent returns – hardly surprising given the dreary economic climate. What does that mean in practice? In short: bad news for Uganda and countries like it. As less developed nations struggle to vaccinate their populations, or pass decent stimulus packages, Toland argues FDI will be drawn magnet-like to their wealthier and more effective cousins. “Over the past year, developed economies have been able to deploy more monetary and fiscal responses due to the bigger size of their economies,” he says. “This will likely lead to comparative stability, and less economic uncertainty in these markets vis-à-vis emerging economies, a lot of which are likely to emerge more slowly from the pandemic.”

A strong investment environment Unsurprisingly, the pandemic and its consequences have dominated agendas in boardrooms the world over. Finally, though, we’ll learn to live with the disease and society will creak back to normal. What then? When it comes to FDI, one possibility is that investors will return to their pre-2020 obsession: the environment. Though Toland admits that the climate crisis was temporarily “forced out of the spotlight” by coronavirus, he’s sure that their fears will reassert themselves eventually. Even as the pandemic raged, after all, a survey by the Global Business Policy Council found that 77% of investors thought climate- related risks would affect their decisions over the next three years. Once again, this might help wealthier countries. Put it like this: why would investors pump money into the flood-prone Maldives or a fire-ravaged Amazon when they could stick to temperate climes in the Northern Hemisphere? Even worse, the virus and its consequences might heap pressure on struggling nations to keep up. Despite ramshackle healthcare, manufacturers in Bangladesh have already been pestered to restart production. Increasingly worried about competition from Cambodia and Vietnam, a prolonged FDI flop in Bangladesh and other poor countries might encourage workers to take even greater risks. On the other hand, a more explicit link between FDI and the health of the planet could force businesses to take climate change more seriously. In a world where a 1% jump in FDI can add 0.04% to global pollution, and one where the causal link between FDI and CO2

emissions is proven from Nigeria to

India, that would be a welcome change. It is, anyway, something to cling onto as the first anniversary of the pandemic passes, unemployment rises, and the lockdowns come and go. ●

Finance Director Europe /

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