One year on: How the world of foreign investment has adapted to Covid
It has been one year since the UK went into lockdown as a result of the Covid-19 pandemic. Investment Monitor rounds up its coverage of how the worlds of business and FDI have changed over the past 12 months.
A woman wearing a face mask as a precaution against the transmission of the novel coronavirus walks by a sign encouraging social distancing in a street in Blackpool, Lancashire on October 16, 2020, as Lancashire prepares to move to Tier 3 of the Local Covid Alert Level to combat the spread of Covid-19. – Another 1.5 million people in England will be placed under the toughest coronavirus restrictions this weekend as Lancashire moves into Tier 3. (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)
It has been a sombre week in the UK, with commemorations taking place to mark the one-year anniversary of the country going into lockdown due to the spread of the Covid-19 virus. While lockdowns save lives, the symbolic nature of the date – 23 March 2020, when it was announced that schools, restaurants and non-essential shops would be closed, among others – was used as a day of reflection, to mourn the 126,000 deaths caused by Covid in the country, and consider the millions who have suffered from the virus or had their lives turned upside down by it. Every country in the world will have its symbolic date, when “the novel coronavirus” ceased being something reported by international correspondents on the news, and shaped all aspects of its daily life.
As buyers focus on building resilience to future shocks, suppliers must become a more equal partner on that journey. Christian Lanng, Tradeshift
Given the death toll and suffering caused by Covid-19, business – and foreign investment at that – may seem to be something of an irrelevance, but international supply chains went from being an easy-to-ignore topic only discussed by a handful of particularly dedicated journalists in the more obscure corners of social media to front page news, as food security, shortages of personal protective equipment and, latterly, vaccine nationalism filled column inches and news reports. Globalisation – considered a bogeyman for much of the past four years by (now former) US President Donald Trump and his small but influential band of imitators – became a good thing as companies and experts from different countries came together to produce several effective vaccines in double-quick time. ‘Building back better’ became the mantra of almost every prime minister and president, with safeguarding and creating jobs key to this strategy. And you know what creates jobs? Foreign direct investment (FDI), that’s what.
A subsidy scheme or a sticking plaster?
Employment levels have been keenly watched throughout the pandemic in the worst-hit countries. In the UK, the word ‘furlough’ went from being used only by the keenest of Scrabble experts to entering the national vernacular as millions retained some sort of income through the government’s wage subsidy scheme. Other countries adopted similar policies, and as such unemployment levels – after an initial surge – didn’t rise as much as many had feared at the outset of the pandemic (see chart below). What happens when the subsidy schemes end and the bills have to be paid, however, is another matter. Ragavan Arunachalam of law firm Collyer Bristow suggests that private equity will provide part of the answer to this particularly thorny question.
One location that hasn’t had to rely upon such schemes is a city that has become globally synonymous with Covid-19, given that it is where the virus is understood to have originated. That city is, of course, Wuhan. Officials there enforced an incredibly strict 76-day lockdown when the contagiousness of the virus became apparent.
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“I have a couple of colleagues here who went through the very, very strict part of the lockdown where they were literally locked inside their communities with razor wire for two months,” Wuhan-based student Spencer Cases tells Investment Monitor. “It was extremely painful and invasive, but also very effective.”
As Cases alludes to, post-lockdown Wuhan has enjoyed a ‘normality’ that has become completely alien to many countries around the world. While Wuhan remains a no-go area for international tourists, and expats have also faced strict travel bans, foreign investors present in the city can only sing the praises of the manner in which local authorities have handled the outbreak of the virus, while it has also enjoyed a huge uptick in domestic tourism numbers, with many thousands of Chinese wanting to pay a visit to what is now known within the country as ‘the hero city’.
Supply chains are now sexy. That is a sentence no one ever expected to read (or write), but how a country gets the stuff it needs has been thrown into the spotlight by the Covid-19 pandemic. In a comment piece, Tradeshift CEO Christian Lanng describes how supply chains must learn to live with the volatility that has characterised the past 12 months, saying: “As buyers focus on building resilience to future shocks, suppliers must become a more equal partner on that journey.”
Away from supply chains, while the pandemic has devastated some sectors over the past year – automotive, tourism, oil and gas, leisure and arts – others have had a ‘good pandemic’. Given the extra focus on healthcare, it is perhaps unsurprising that pharmaceuticals has excelled, while the need for many to work, learn and socialise from home has seen increased revenues in technology and communications (see chart above).
Indeed, the health and tech sectors are expected to lead the recovery in FDI, which saw flows plummet by 42% in 2020, according to the UN Conference on Trade and Development. Last year saw China – which, as described above with the Wuhan example, managed to recover from the Covid lockdowns relatively quickly – become the world’s leading country for FDI, overtaking the US. The former champ is expected to retake its crown, but for that to happen its states will have to actually be open to FDI, and not just claim that they are. As US immigration attorney Amanda Brill describes, there is still some way to go on that score.
What the world will look like in March 2022 is anyone’s guess. Will we be back in the office? Will mask wearing be commonplace? Will Joe Wicks’s batteries have finally run out? One thing that is for certain is that the Covid-19 pandemic has changed the world. Whether that is for better or worse remains to be seen. The ugly spats around vaccine nationalism, and the manner in which the jabs seem to be the privilege of developed countries, suggests that ‘building back better’ is a meaningless phrase being bandied around by politicians who are still in full-on protectionist mode. If the gaps between the rich and the poor – be it countries or individuals – simply continue to widen, an opportunity will have been missed (along with the targets for the UN’s Sustainable Development Goals, no doubt). Hopefully, as developed countries emerge from the pandemic, their prior global commitments on climate, poverty, hunger, gender equality and the rest will surface again.
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