Financial Times Global Summit Series: Trade and investment policy for all
29 October 2020
COVID-19 is accelerating a transformation in international production. The new industrial revolution, the policy shift towards more economic nationalism, and sustainability trends will all have far-reaching consequences for the configuration of international production over the coming decade. At UNCTAD we are observing a global trend towards shorter value chains, higher concentration of value added and declining international investment in physical productive assets.
That will bring specific challenges for developing countries. For decades, their development and industrialization strategies have depended on attracting FDI, increasing participation and value capture in GVCs, and gradual technological upgrading in international production networks.
But this expected transformation also brings opportunities for development, such as promoting resilience-seeking investment, building regional value chains and entering new markets through digital platforms. In this new context, a degree of rebalancing towards growth based on domestic and regional demand, and promoting investment in infrastructure, domestic services, the green economy and the blue economy is necessary.
We believe that private sector investment will shift focus from export-oriented efficiency-seeking investment in narrowly specialized GVC segments to a focus on what we call “export-plus-plus,” that is a focus on investments in production for regional markets but also for a broader industrial base locally. This would also imply a shift from cost-based competition for single-location investors to competition for diversified investments based on flexibility and resilience. We predict a transition from large-scale industrial investors with “Big infrastructure” to making room for small-scale manufacturing facilities and services with “Lean infrastructure”.
With all of these new obstacles facing developing countries seeking gainful integration into the global economy, as the world turns from response to recovery, “a better recovery” will also require ambitious reforms to the international financing architecture. That is why we are heartened that the International Monetary Fund has joined our calls for reforming the financing architecture. We have heard Ms. Georgieva’s call for “building forward” rather than building back, and we continue to stand by our view that agreement on a statutory sovereign debt restructuring mechanism should remain the focus of our ongoing, forward-looking discussions. Faced with the Covid crisis, UNCTAD estimates that developing countries face a wall of repayments on their external public and publicly guaranteed debt in the region of US$ 2.7 trillion to US$ 3.4 trillion in 2020 and 2021 alone. The potential magnitude of such a debt crisis should give us all pause.
We are already seeing developing countries work to strengthen their regional collaboration and south-south cooperation in light of the changing landscape of globalization. Regional initiatives like AfCTA have taken on much greater importance post pandemic; they must not only bring regions together but help generate greater financing resources in light of the new normal.
That is why we also put a strong emphasis on regional collaboration to tackle the scourge of illicit financial flows. Our recent EDAR 2020 estimates generate nearly $90 billion in lost financing in Africa alone every year, accounting for nearly half the SDG investment gap in the region. The countries affected most by illicit flows, due, for example, to trade misinvoicing, in Africa spend 25 per cent less on health and 58 per cent less on education compared to otherwise similar countries.
At UNCTAD, we continue to believe that despite the profound development challenges we face today, there is still scope to find a collective basis for our mutual pursuit of prosperity for all. The next chapter of globalization is already being written, and we are eager for all countries to shape that future for all of our mutual benefit.
