OECD Ministerial Council Meeting on 'The Path to Recovery'
27 October 2020
We need to shift the focus of globalization from “just in time” efficiencies to “just in case” preparedness. We need to reorganize the model of international production implicit in the old export-led growth model’s approach to globalization – this means making supply chains shorter to reduce the wasteful and superfluous. Production chains will need to adapt and re-configure under green and circular economy principles. The future of production will be more locally produced, more sanitary and sustainability requirements, more teleworking, more demand by digital means, less packaging, etc.
COVID-19 has brought the length of supply chains and their resilience to the fore, but a trend towards reshoring was already well underway before the crisis. Over the past decade, flows of cross-border investment in physical productive assets had slowed to a trickle, the growth of trade had slowed down, and the growth in global value chains had stopped. The culmination of these trends will be shorter, less fragmented value chains and a higher geographical concentration of value added, primarily affecting higher-technology value-chain intensive industries.
We expect increased reliance on supply chain digitalization allowing value chains to be more loosely governed, platform-based and asset-light. Importantly, this will make value capture in FDI-host countries become more difficult going forward. A major concern for developing countries in particular will be that access to and upgrading along the GVC development ladder becomes ever more difficult in this scenario. Regional economic cooperation, industrial policy and investment promotion will therefore become even more indispensable for building regional value chains for the new normal we face beyond the pandemic.
From a focus on export-oriented efficiency-seeking investment in narrowly specialized GVC segments, countries will need to move towards broader investment in production for regional markets, and more investment in a broader industrial base locally. From cost-based competition for single-location investors, countries will be increasingly in competition for diversified investments based on flexibility and resilience.
The global trend towards shorter value chains, higher concentration of value added and declining international investment in physical productive assets 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.
It is our belief that continued collaboration between the OECD countries and the developing countries – along the dimensions of trade, investment, digital technologies and development cooperation - can play a constructive role in writing the next chapter in globalization. We look forward to continued collaboration with the OECD and stand ready to support OECD countries in this type of dialogue moving forward.
