How investment policies are responding to COVID-19

Countries are putting in place a variety of investment policies in response to the coronavirus pandemic, according to a special issue of UNCTAD’s Investment Policy Monitor.

Such policies include facilitation and retention of investment, providing incentives, financial support to crisis-affected companies, supporting local small and medium-sized enterprises (SMEs) in supply chains, as well as protecting national security and public health through foreign investment screening.

The monitor documents and analyses how investment policies are responding the crisis, expected to slash global foreign direct investment (FDI) flows by up to 40% during 2020-2021, according to the most recent UNCTAD Global Investment Trends Monitor.

It shows the global spread of COVID-19 is also impacting the negotiation of international investment agreements (IIAs).

“National and international investment policies can and should contribute to tackling the devastating economic and social effect of the pandemic. Above all, they can incentivize production of medical equipment and drugs, facilitate administrative procedures, provide equity capital to struggling companies and ensure that foreign takeovers are not contrary to the national public interest,” Dr. Mukhisa Kituyi Secretary-General of UNCTAD.

Fiscal and financial support for companies and employees are at the core of economic policy responses to the pandemic, with countries tapping a variety of investment policy instruments at their disposal to manage the crisis.

Several countries have taken steps to alleviate the administrative burden for firms and to reduce bureaucratic obstacles with the aim of speeding up production processes and fast-tracking the delivery of goods during the pandemic.

Some governments have voiced their readiness to intervene more actively in the market to keep strategic businesses afloat. This includes the options of capitalization, equity investment or even full or partial nationalization.

Several countries have included incentives for the rapid development of medication and vaccines in their state aid packages.

Financial and fiscal aid for SMEs is a core part of most state aid packages related to COVID-19. They include, in general, guaranteed recovery of delayed payments, indirect financing to suppliers through their buyers, tax credits and other fiscal benefits to firms, co-financing of development programmes, and direct provision of financing to local firms. These aid programmes can help keep supply chains intact.

To protect public health and national security during the crisis, some countries have resorted to interventions that specifically target the health industry.

These measures include, inter alia, an obligation of private firms to shift production to manufactured goods related to the COVID-19 emergency, the possibility to intervene and temporarily occupy factories, production units and private health-care facilities or to confiscate public health-related goods.

The pandemic is likely to have lasting effects on investment policy making. It may reinforce and solidify the ongoing trend towards more restrictive admission policies for foreign investment in industries considered as being of critical importance for host countries.

At the same time, the pandemic may result in more competition for attracting investment in other industries as economies strive to recover from the crisis and disrupted supply chains need to be re-established.

The crisis may enhance the utilization of online administrative tools as an investment facilitation tool.

“Overall, governments need to balance the effort to promote and incentivize private investment for building and expanding productive capacity in the country with regulations for ensuring accessibility and affordability of goods and services for the poor and vulnerable,” said James Zhan, director of investment and enterprise at UNCTAD.

Finally, it is expected that the post-pandemic period will witness an acceleration of countries’ efforts to reform their IIAs to ensure their right to regulate in the public interest.

Original source: UNCTAD
Published on 04 May 2020