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Legal Briefs: Implications of Covid 19 on investments- Tracking down the pandemic’s implications globally


With a change as major as a global pandemic hitting worldwide, an analysis of the latter’s effects on investments is due, with investments being highly sensitive to the smallest of changes. An analysis of the Covid19 impact on investments requires demonstrating the effect of Covid by sectors (I), by country (II), as well as exposing the pandemic’s role as a catalyst for the global acceleration towards digitalization (III). In a final point, projections for post-pandemic are discussed.   

I. Least and most affected investment sectors by Covid19

According to the UNCTAD, investment flows to sectors relevant for the Sustainable Development Goals "SDGs" in developing countries have collapsed due to the pandemic; among the aforementioned affected investments, we can cite investments in infrastructure – such as power generation, telecommunication and distribution – investments in renewable energy, health infrastructure as well as investments in agriculture, research and rural development. The UNCTAD further noted that Greenfield investments were negatively affected throughout 2020 and into the first quarter of 2021. It added in its 2021 world investment report that ‘’Global foreign direct investment "FDI" flows fell by 35 per cent in 2020, reaching $1 trillion, from $1.5 trillion in 2019. This is the lowest level since 2005 and almost 20 per cent lower than the 2009 trough after the global financial crisis,’’ specifying later on that FDI in developed economies fell by 58 per cent, and by 8 per cent in developing economies.

In the EU, it was naturally observed that sectors that require physical proximity, such as the cultural and creative industries, have been the hardest hit by the crisis. In Germany, most investments were in the information and communication sector; where investments reached 57%, investments in manufacturing reached 34%, while those in construction represented 36% and finally investing in retail accrued to 39%.

Further, the Global Innovation Index (see of 2021 indicated that ‘’Firms with outputs including software, internet and communications technologies, hardware and electrical equipment industry and pharmaceuticals and biotechnology amplified their investments in innovation and increased their R&D [research and development] efforts. In contrast, firms in sectors heavily hit by the pandemic’s containment measures and whose business models rely on in-person activities – such as transport and travel – cut back their outlays, the tracker showed.  The GII 2021 shows that technological progress at the frontier holds substantial promise, with the rapid development of COVID-19 vaccines being the greatest example.’’

II. Host Countries least and most affected by Covid19

The UNCTAD observed a general decline of FDI flows in the following percentages: flows to Europe declined by 80% followed by the decline in flows to North America by 40%. In Latin America and the Caribbean FDI flows fell by 45%, by and 16% in Africa.

In a stark contrast, flows in Asia rose by 4%, Inflows in China increased by 6 per cent with East, putting Asia as the largest host region, accounting for half of global FDI in 2020.

Governments and regional organizations have shown great effort in encouraging investments; for instance, the European Commission urged member states  "to make full use of their investment screening mechanisms to address cases where the acquisition of European companies by investors from outside the EU would create risks." A direct reflection of the efficiency of such incentives was reflected in the World Bank’s Quarterly Global Multinational Enterprises (MNE) Pulse Survey; done in (October – December 2020) in developing countries where 75% of multinational affiliates stated that they plan to keep their investment level unchanged and 91% of companies stated that changes in regulations or policies helped parent companies decide to increase investment.

III. Covid19 as a catalyst for digitalization

WIPO Director General Daren Tang pointed out that sectors embracing digitalization, technology and innovation were the ones to have shown the most resilience to the Covid19 impact. His statement was made following the observation of the Global Innovation Index of 2021 that provided that Switzerland, Sweden, U.S., and U.K. have led the innovation ranking for the past five years.

Conclusion: Forecast for the upcoming years

Although FDI recovery is highly dependent on "vaccination rates, emergence of virus mutations and economic sectors;" the UNCTAD predicts in a publication of 21 June 2021 that global FDI flows would recover – for the most part - with an increase of 10% to 15% in 2021, with UNCTAD’s director of investment and enterprise, James Zhan, promising an even further increase in 2022.