G20 Extraordinary Trade and Investment Ministers Telecon on Covid-19
30 March 2020
DG Azevedo presented impacts of the pandemic on the trading system. As requested by the G20 presidency, I will focus on Covid-19’s impact on global investment prospects and policy implications.
The current pandemic is causing a precipitous drop in global FDI. We at UNCTAD expect a decline in global FDI flows of up to 40%. The necessary confinement and lockdowns around the world will have devastating effects on all economies, independent of their links to global supply networks. This global recessionary shock will push down investment significantly. We expect the negative impact to be widespread, affecting FDI and capex in developing countries as much as in developed economies, or more. Many of these impacts will be almost immediate, as the demand shock is accompanied by forced interruptions and postponements of investment projects.
Covid-19 is no longer only a global value chain problem but is affecting all types of foreign investment. UNCTAD data suggest downward pressure on FDI will be -30% to -40% in 2020-2021.
Announcements of new greenfield projects are being delayed.
Mergers and acquisitions (M&As) worldwide are slowing down, on course for a 50% decrease in March, and potentially a 70% decline in April.
60% of MNEs have now added warnings on the impact on sales of the global recessionary shock caused by the pandemic.
- On average, the top 5’000 MNEs, which account for a significant share of global FDI, have now seen downward revisions of 2020 earnings estimates of -30% due to Covid-19, with peaks of -200% in some industries.
Many of the worst affected industries are normally important cross-border capital investors.
Earnings losses are also relevant as more than 50% of global FDI consists of reinvested earnings by foreign affiliates.
Overall, the global pandemic is causing severe short-term disruption as well as possible lasting damage to global production networks and supply chains. The negative impact on FDI and GVCs threatens to accelerate pre-existing trends of decoupling and reshoring, and protectionist policies aimed at protecting critical industries and technologies.
It will take significant time for global FDI and global value chains to recover from the currentpandemic crisis. One of my concerns is that millions of MSME suppliersdepending on global value chains and supply networksare now at risk worldwide. It is particularly worrying for those MSMEs in developing economies where the Governments do not have sufficient financial and fiscal means to support their firms. Given the limited effectiveness of conventional monetary and fiscal measures, governments need to consider all policy areas and adopt innovative measures for investment promotion and facilitation to revitalize global value chains and supply networks. They should also identify adequate means to help developing countries, particularly LDCs in attracting investment, retaining investment and maintain their firms’ linkages with MNEs in the global production networks and supply chains.
The nature and scale of policy packages adopted by governments will be critical to stemming the pandemic’s longer-term impact on cross-border investment and global supply chains. Most packages are expected to include investment support measures. Necessarily, investment policy reactions so far span both supportive and restrictive measures.
Restrictive measures include suspension of liberalization, considerations of nationalizations and prevention of selloffs of companies hit by the
Measures aimed at safeguarding and re-starting international production after the crisis include massive stimulation packages.
The immediate priority should be to minimize the negative impact of the pandemic and to ensure the efficient functioning of global supply networks essential for fighting the pandemic. Ministers have an important responsibility to protect global supply chains and the free movement of essential goods by affirming the smooth functioning of their shipping, ports and transit industries, especially for critical goods needed to fight the pandemic. The human cost on the seafarers, port operators and other key workers who make our trade and investment systems function should not be forgotten.
In the medium to longer term, we need to work together to keep global supply chains in working condition so they can be restarted as engines of growth as soon as possible by promoting and facilitating foreign direct investment and trade. To protect from the knock-on effects on investment due to the current demand shock, countries should ensure their stimulus packages include attention to all available technological, trade and transport facilitation and investment facilitation solutions to get cross-border trade and investment going again quickly and efficiently to promote a V-shaped, rather than U-shaped recovery. We cannot afford to compound the health and economic challenges facing us.
