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From: Karl Sauvant <[log in to unmask]>
Date: Mon, Oct 5, 2020 at 12:05 PM
Subject: COVID-19 and FDI: How should governments respond? (Columbia FDI
Perspective No 288)
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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 288  October 5, 2020
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])
*COVID-19 and FDI: How should governments respond?*
* <#m_-8895240315909854351__edn1>
Ivan Anton Nimac** <#m_-8895240315909854351__edn2>

Policy responses to the unprecedented economic shocks caused by COVID-19
have given limited attention to the promotion of FDI, which might have a
major role to play in the recovery. Based on good practices demonstrated by
countries, there are certain actions that governments should consider
during the pandemic’s crisis and recovery phases.

To begin with, governments’ economic support to keep firms operational
should be extended to both domestic firms and foreign affiliates. Both
types of firms contribute to employment and livelihoods, the foreign-owned
often also to higher-quality jobs.

There has been a proliferation of new barriers to FDI: at least 42 new
barriers to entry—mainly in the form of FDI screening and the suspension of
foreign work visas—have been put in place between April and July 2020.[1]
<#m_-8895240315909854351__edn3> While some have been levelled on all
incoming FDI, most measures specifically target either healthcare or
“strategic” sectors (e.g., infrastructure, utilities).[2]
<#m_-8895240315909854351__edn4> New barriers to FDI entry should be clearly
defined, and COVID-19 measures time bound and subject to review.

Investment promotion agencies (IPAs) should start with supporting the
retention of existing investors. Successful IPAs’ principal roles are
marketing, information provision, assistance, and advocacy services.
Retention work is intrinsic to their information provision and assistance
functions. There are two strong justifications for this. First, falling
global FDI flows make it vital to maintain a country’s existing FDI stock.
Second, 30% of FDI inflows every year are reinvestment from investors
already in the country.[3] <#m_-8895240315909854351__edn5>

Successful IPA emergency retention responses, which have supported
investors seeking to manage immediate disruptions, include maintaining
business continuity by working remotely (Austria, Costa Rica, Jordan),
continuously communicating with investors on all government measures
(Chile, Ireland, Republic of Korea), providing direct problem-solving
assistance, prioritizing investors with important supply chains (Abu Dhabi,
Egypt, Ethiopia), and bolstering advocacy to convey to governments the
challenges faced by foreign firms (India, Saudi Arabia, Tunisia).[4]
<#m_-8895240315909854351__edn6> Since the crisis phase has proven to be of
long duration, further technological adaptation by IPAs is needed to carry
on investor meetings and site visits. This calls for IPAs strengthening
their capabilities to act virtually and innovating their
investment-attraction tools.

In the recovery phase, governments should consider resetting their FDI
policy through a four-step process to help them overcome COVID-19’s impact
on FDI flows and to account for such pre-existing transformation drivers as
sustainability and technological development:

   - Governments should first review FDI strategies to test which of their
   previous FDI target segments remain resilient in the post-COVID-19 economy.
   This requires assessing the exposure of segments in which investor outreach
   was being pursued pre-COVID-19, to test if their value propositions remain
   strong through risk assessments and competitiveness benchmarking. For
   example, while apparel, automobiles, retail, and leisure industries have
   been negatively affected, medical machinery and supplies, pharmaceuticals,
   information-technology-enabled services, logistics, and some media have
   been less impacted or grown in importance.

Reviewing also involves identifying emerging competitive segments that may
arise from the global value chain/FDI footprint remapping. Not all
countries will have new opportunity sectors. However, near-shoring will
create prospects for countries that have not previously been significant
FDI destinations, but are located close to major markets.

This exercise should also be used to consider segments that are the best
fit for other national objectives (e.g., sustainable, green growth,
Industry 4.0 sectors). Countries do not evaluate their FDI strategies very
frequently. Doing it now requires thinking bigger than a pandemic response
and considering other pressing considerations.

   - Once identified, the priority segments should be confirmed. This
   entails prioritizing the activities of ministries and agencies responsible
   for business registration and operations (including licenses, work permits,
   visas, incentives administration), with IPAs ensuring coordinated action.
   - Governments should then implement FDI policy reforms to further
   improve the value propositions of current and emerging priority segments.
   This may require (i) phasing out any crisis-related screening mechanisms;
   (ii) aligning the incentive regime with the new target segments; and (iii)
   reviewing international investment agreements and laws to address
   problematic issues raised by the pandemic (e.g., clarity of rights and
   obligations in force majeure situations). Governments should also consider
   establishing investor-state grievance mechanisms to capture issues before
   they escalate into legal disputes.
   - Lastly, countries should promote new segments, with IPAs undertaking
   investor outreach and facilitating investments. In countries without new
   opportunities, the work of IPAs should focus on aftercare throughout the
   recovery phase. Attracting new projects requires new strategies
   incorporating digital marketing techniques, virtual meetings and virtual
   site visits. Over time, this will require IPAs to adjust their performance
   indicators (KPIs) and mix of investor services.

Adapting to the new sectoral landscape, bolstering investor confidence and
clarifying governments’ ability to develop legitimate policy responses will
fortify the key role of FDI in the post COVID-19 recovery and national
development agendas.

* <#m_-8895240315909854351__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_-8895240315909854351__ednref2> Ivan Anton Nimac ([log in to unmask]) is
Global Lead for Investment Policy and Promotion at the World Bank Group.
The views expressed here are his own. The author would like to thank Gary
Gereffi, Sebastian Reil and Douglas Van den Berghe for their helpful peer
[1] <#m_-8895240315909854351__ednref3> Team research of the Investment
Climate Unit, World Bank Group, July 2021.
[2] <#m_-8895240315909854351__ednref4> OECD, *Acquisition- and
Ownership-related Policies to Safeguard Essential Security Interests*
(Paris: OECD, 2020)
Section 2.1.1.
[3] <#m_-8895240315909854351__ednref5> World Bank, *Global Investment
Competitiveness Report 2017/18* (Washington D.C.: WBG, 2018)
p. 20.
[4] <#m_-8895240315909854351__ednref6> World Bank, “The initial responses
of investment promotion agencies to Covid-19 and some observed effects on
FDI” (Washington, D.C.: WBG, 2020)
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Ivan Anton Nimac, ‘COVID-19 and FDI: How should
governments respond?’ Columbia FDI Perspectives, No. 288, October 5, 2020.
Reprinted with permission from the Columbia Center on Sustainable
Investment (***
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Riccardo Loschi, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 287, Florence Dafe and Zoe Williams, ‘Explaining the rise of
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   - No. 286, George A. Bermann, N. Jansen Calamita, Manjiao Chi, and Karl
   P. Sauvant, ‘Insulating a WTO Investment Facilitation Framework from ISDS,’
   September 7, 2020
   - No. 285, Sarah Atkinson and Jessica Hanson, ‘Corporate inversions and
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*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - CCSI announces a *call for papers* for the 2020 edition of
   the Yearbook on International Investment Law and Policy. Original
   contributions to be considered for publication in the Yearbook will be
   accepted on a rolling basis until *February 28, 2021.* More information
   can be found here
   - *On October 13, 2020*, join CCSI, FAO, Global Donor Platform for Rural
   Development, International Land Coalition, IFAD, Land Portal, and Welt
   Hunger Hilfe for a Committee on World Food Security (CFS) High-Level
   Special Event on Strengthening Global Governance of Food Security and
   Nutrition. See further details, including registration link, here
   - *On October 15, 2020*, CCSI, RMF (Responsible Mining Foundation),
   Pact, University of Delaware, and UN Sustainable Development Solutions
   Network (SDSN) are co-hositng "Mining & the SDGs: ASM and LSM
   Perspectives." For more information, and to register, please see our
   website here

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2020 Columbia Center on Sustainable Investment (CCSI), All
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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