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The future of FDI: drivers and directions to 2030

UNCTAD's James Zhan identifies the factors that will shape the coming decade in FDI, published by FDI Intelligence

Over the past two decades, global value chains witnessed one of rapid growth followed by one of stagnation. The decade to 2030 is likely to be one of transformation for global value chains (GVCs), reshaping the global trade and investment landscape.

The pandemic has caused a treble shock of supply, demand and policy. It has a severe impact on FDI and GVCs. I would expect that widespread disruption of many GVCs and the deep recession of global FDI to extend into 2021. A rebound of global FDI will probably start only in 2022, hence showing a U-shape recovery.

In the longer-term, the pandemic is accelerating several trends already emerging prior to the pandemic, magnifying some challenges, but also opening up opportunities for investment and development. While the pandemic may not be over soon, reorientating investment promotion strategy will be unavoidable when charting a sustainable course to recovery.

Five drivers for GVC transformation

Five driving forces will reshape the global trade and investment landscape:

• Economic governance realignment: international trade and investment policy-making is shifting from multilateral co-operation towards regional and bilateral solutions, with intensified protectionism at home. The aggravated competition between economic powers in trade, investment, technology and so on may lead to a widespread global systemic divide in economic governance.

• New industrial revolution: the robotics-enabled automation, enhanced supply chain digitalisation, the Internet of Things and additive manufacturing will stimulate cross-border investment in new business sectors and through new modes of operation.

• Sustainability imperative: markets and governments are prioritising the mainstreaming of sustainability in products and processes. The UN’s Sustainable Development Goals (SDGs) will also change the patterns of global FDI, in terms of the sources of financing, sectoral distribution and geographical location.

• Corporate accountability: global efforts to fight corruption, illicit payments, tax evasion and anti-competitive practices, as well as environmental, social and governance standards will fundamentally change the modes of operation and governance of multinationals.

• Resilience-oriented restructuring: the massive pandemic disruption and the aggravated geopolitical rivalry will drive multinationals to diversify and reshoring or near-shoring their GVCs to be more shock-resistant and less reliant on foreign sources.

Combined, these five mega-forces will drive GVC transformation in the decade ahead. They will fundamentally alter the way firms across industries design and operate their global value chains, affecting where they locate which type of activities, how they distribute value-add over their networks, and how they transmit practices to actors along their value chains. Global patterns of investment will change as a result, as will their potential impact on economic growth, employment creation and sustainable development.

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