Whilst the immediate effects have been severe, the pandemic has further accelerated trends that are reshaping the global investment landscape, such as the push for digital, sustainable and resilient solutions in a world that has turned more fragmented. Estimates suggest that in 2020 global trade in goods fell by 8%, while foreign direct investment (FDI) flows fell by a record 35% to US£1trn, the lowest figure since 2005.1 2 The retraction in global cross-border investments was more severe in developed economies, where FDI inflows and outflows fell by almost 60%. On the other hand, developing economies saw FDI inflows and outflows fall by only 10% largely due to resilient flows in Asia, particularly in China and India.3 

During the pandemic the internationalisation of major multinational enterprises (MNEs) stagnated, although the degree of this effect varied considerably across industries. The value of announced greenfield investment fell by 33% to a record low of US$564bn, cross border M&A investment fell by 6% to US$475bn while project finance deals registered a 42% decline to US$367bn in 2020.4 The UNCTAD forecasts suggest global FDI flows have recover some ground in 2021 and return to pre-pandemic levels (2019) in 2022. Developed economies are expected to drive the growth in FDI, particularly in M&A activity and public investment support. These measures will have a positive effect on infrastructure, green, and digital economy sectors.5

Over the past two decades, the increasing investment in services, enlarged pool of cross border investors and the focus on emerging technologies have shaped the global investment landscape. The gradual servicification of manufacturing and the rapid rise of global digital technology companies have driven an upwards trajectory for investment in services. Services accounted for 60% of announced greenfield projects and 71% of announced cross border M&A deals in 2020.6 The sources of the investment flows are also becoming more diversified, with the emerging markets accounting for almost one fifth of global M&A deals by value and almost half the total value of global greenfield and international project investment in 2020.7 State-owned investors (SOIs), including largely emerging-market-located sovereign wealth funds (SWFs) have also become prevalent in the investment landscape with a growing appetite for alternative asset classes and active investment strategies.

Changing guards: Top host economies by FDI inflows (2019-20)

As the global economy recovers from the pandemic, major forces ranging from emerging technologies, investment policy sustainability and geopolitics will reshape the pattern of the global investment landscape. FDI regulations and policies, already gaining traction prior to the pandemic, have been deployed by national governments to address supply chain vulnerabilities and the risk of predatory takeovers of strategic sectors. The number of investment policy measures adopted in 2020 rose by 40% compared to 2019, with the ratio of restrictive policy measures to liberalisation measures increasing by 41%.8 

GVCs will also adopt new modes of business operation to enhance resilience, flexibility and uncertainty of considering the current global business environment. This could involve elements of reshoring or regionalisation for businesses, while governments are expected to gear up efforts to increase sustainability of business operations through integration of environmental, social and governance standards into regulatory frameworks for foreign investments and capital markets. Geopolitics and the changing geography of global demand will impact the international investment as developing countries continue to deepen their participation in global investment flows and tension remains high in the rivalry between the US-China.9

Policies matter: Number of investment policy measures adopted globally between 2008-2020

 

1 “World trade primed for strong but uneven recovery after COVID-19 pandemic shock”; World Trade Organisation, press release (March 2021) 2 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021). 3 Ibid. 4 Ibid. 5 Ibid. 6 “World Investment Report 2020: International Production Beyond the Pandemic”; UNCTAD (June 2020). 7 “World Investment Report 2021: Investing in Sustainable Recovery”; UNCTAD (June 2021) 8 Ibid. 9 “Globalization in transition: The future of trade and value chains”; McKinsey Global Institute (2019)

​Clean growth means facilitating economic development and improving standards of living, while protecting natural resources and ecosystems on which our well-being relies. The transition to a low-carbon economy requires mobilising investment and innovation to develop opportunities for inclusive and sustainable growth.

Achieving global net zero greenhouse gas (GHG) emissions by 2050 requires investment of US$1–2trn per year, which equates to roughly 1–1.5% of global GDP according to the Energy Transitions Commission (ETC) – funding to facilitate a green industrial revolution.1 After years of underperformance and “boom–bust” cycles, several clean tech sectors are thriving, fuelled by consumer demand and private and public investment. The global market for low-carbon goods and services has been estimated at US$4.2trn, spanning everything from recycling and the circular economy to environmental performance analytics and labelling.2

Electric growth: Electric car stocks in selected countries, 2013-2018

Rapidly increased demand and investment in innovation has made several clean technologies, such as the renewable energy, electric vehicles (EVs), and energy-efficiency systems cost-competitive and ready for broader deployment. Wind energy costs in the US, for instance, have fallen from over 55 cents per kilowatt-hour in 1980 to under 3 cents today.3 Globally, solar photovoltaic costs have fallen 82% over the last decade, according to the International Renewable Energy Agency (IRENA).4 However, the net zero transition requires further innovation in technologies and services, such as carbon capture and storage, synthetic biology, carbon accounting, and others to reduce emissions from hard to abate sectors and activities.

Global renewable energy employment by techology, 2019

Given the scale and the global nature of the challenge, international trade and investment is critical to the necessary innovation, development and diffusion of green goods and services. It also presents significant opportunities for business and countries that are able to develop innovative and productive capabilities and capacities in key clean growth sectors. The “Build Back Better” vision of recovery programmes following the Covid-19 pandemic – in which the fiscal demands of crisis recovery are seen as an opportunity to grapple with longstanding economic and social problems – has diverted significant funding towards the clean growth transition.5 It is crucial that this “green industrial policy” aims to make the clean transition “just”, by alleviating the social and economic costs by diversifying economic activity and helping people adapt in a changing labour market, without resorting to unwarranted protectionism.

 

[1] https://www.energy-transitions.org/wp-content/uploads/2020/09/Making-Mission-Possible-Full-Report.pdf [2] https://ec.europa.eu/environment/eussd/smgp/facts_and_figures_en.htm [3] https://www.energy.gov/eere/next-generation-wind-technology [4] https://www.irena.org/publications/2020/Jun/Renewable-Power-Costs-in-2019 [5] https://www.oecd.org/coronavirus/en/themes/green-recovery

The global supply chains for food, agricultural products and technology experienced an unprecedented shock due to the pandemic. Despite the disruption trade in foodstuff remained remarkably resilient, highlighting the essential role of food supply in times of crisis. Nevertheless, global food systems are undergoing a structural transformation that is necessary, not only to feed the world’s growing population, but also to prevent damaging impacts of climate change and environmental degradation.

The globalisation of supply and markets has seen agri-food sectors become more integrated with other sectors of the economy, both within countries and across those value chains. International trade in food and agriculture has more than doubled in real terms between 1995 and 2018 to reach US$1.5trn.1 The total global food and beverages market was worth almost US$6trn in 2019, following annual growth of 5.7% since 2015. Prior to the pandemic, the market was forecast to reach a value of US$8.6trn by 2025, before climbing to nearly US$12trn by the end of the decade.2

The global food system has also become more “global”, as exports from developing countries and emerging economies made up more than one-third of global agri-food exports by 2018, with around a third of global agricultural and food exports traded within global value chains (GVCs).3 Agri-food value chains have been driven by foreign direct investment (FDI) and trade, allowing companies to operate across multiple regions and making it easier for developing countries to integrate into global markets.

Globalised food: Agri-food exports and imports, average annual growth rates

However, the pace of this internationalisation has slowed down in recent years, and the global pandemic fuelled concerned about the resilience and sustainability of the global food system. While supply chains proved largely resilient, parts of the developing world experienced food security crises as a result of the pandemic. The Covid-19 pandemic further execrated the trends that saw the number of undernourished people increase by as many as 161 million from 2019 to 2020.4 The UN FAO warned that even though agri-food systems had proved resilient, the economic effects of the pandemic would cause acute and chronic food insecurity to increase, with the most vulnerable groups in society hit by lower incomes and employment.5 With the world’s population forecast to hit the 10bn mark by 2050, global food demand is expected to continue to grow significantly, putting further pressure on the global food system. 

Meeting this demand will require development and adoption of innovative technologies and practices throughout the global value chain. In developing countries, for instance, agricultural technology (agri-tech) helps to empower the huge population of smallholder farms in areas including Africa and South Asia by giving them platforms for trading, connecting, learning and creating greater efficiency. More advanced technology, such as Artificial intelligence (AI), now plays a large role in agri-tech and is expected to become increasingly focused on precision agriculture with the optimisation of decisions on cropping, livestock husbandry and land management to improve farm efficiency and productivity. The new emerging precision ‘smart’ agriculture market is estimated to grow rapidly from US$13.8bn in 2020 to US$22bn by 2025.6

Many of the solutions developed by agri-tech providers target the urgent challenge of sustainability in supply chains and food production. With the food supply chain accounting for a quarter of all global emissions – 82% of which are attributed to food production – cutting emissions, ecological harm and waste are at the core of national sustainable development strategies.7 Food systems also have a negative impact on biodiversity, contributing to the mass extinction of species, ecocide, soil loss, land degradation, air pollution and emissions. A shift towards alternative sources of protein, nature-positive food practices, such as conservation agriculture, sustainable aquaculture (fish farming) and vertical farming, as well as sustainability standards and targets will all be required to make the global food systems ready to face the current and future challenges.8

Heavy emitters: Global agricultural greenhouse gas emissions

1FAO. ‘The state of agricultural commodity markets - agricultural markets and sustainable development: global value chains, smallholder farmers and digital innovations’. 2020. http://www.fao.org/3/cb0665en/CB0665EN.pdf 2Research and Markets. ‘Insights on the Food and Beverages Global Market to 2030 - Identify Growth Segments for Investment’ (internet). PR Newswire. 2021. https://www.prnewswire.com/news-releases/insights-on-the-food-and-beverages-global-market-to-2030---identify-growth-segments-for-investment-301202729.html 3FAO. ‘The state of agricultural markets 2020’. 2020. http://www.fao.org/home/digital-reports/state-of-agricultural-commodity-markets/en 4FAO. The Sate of Food Security, 2021. http://www.fao.org/state-of-food-security-nutrition 5FAO. ‘Covid-19, agricultural markets and trade and FAO’s response’. 2021. http://www.fao.org/3/nf041en/nf041en.pdf 6Markets and Markets, ‘Smart Agriculture Market worth $22.0 billion by 2025’. 2020. https://www.marketsandmarkets.com/PressReleases/smart-agriculture.asp 7Ritchie, H. ‘Food production is responsible for one quarter of the world’s greenhouse gas emissions’ 2019. https://ourworldindata.org/food-ghg-emissions 8UNCTAD. ‘Trade and development report 2020. From global pandemic to prosperity for all – avoiding another lost decade’. 2020. https://unctad.org/system/files/official-document/tdr2020_en.pdf; The Economist Intelligence Unit. ‘Changing trends in food: discovering and utilising alternative crops’. https://foodsustainability.eiu.com/blogs/changing-trends-in-food-discovering-and-utilising-alternative-crops/