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SDGs increasingly conditioning FDI


The economic crisis brought about by Covid-19 has affected foreign direct investment, with a filtering process favouring North over South and a prioritising of the Sustainable Development Goals.



SDGs increasingly conditioning FDI

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Developing regions and transitional economies proportionally have been the worst affected by the pandemic’s impact on investment in global value chains (photo F.Dubessy)
Developing regions and transitional economies proportionally have been the worst affected by the pandemic’s impact on investment in global value chains (photo F.Dubessy)
The health crisis, and its economic fallout, has weakened businesses. Consequently, to prevent them falling in the hands of predators, most governments have moved to protect their strategic industries.

 
A European Union Directive dated March 2019 already set out the principle of filtering foreign direct investment (FDI) projects post-evaluation. During the crisis, this vetting of projects prior to approval increased, with the addition of some fifty or so filtering mechanisms over the course of 2020. A means towards de-globalisation, the vetting allows FDI to be oriented according to several criteria, including its contribution not only towards the UN’s Sustainable Development Goals (SDGs) but also towards helping increase a country’s resilience and conformity with domestic economic policy. “Consideration of sustainable development goals is becoming more and more an issue for investment promotion agencies (IPAs),” indicated OECD economist and FDI network manager Alexandre de Crombrugghe during an EBSOMED* webinar at the end of October 2021.

 
"Today, a balance is starting to be found between the need to protect businesses and the desire to continue opening up to outside markets,” emphasizes Emmanuel Noutary. For the Anima Investment Network’s general manager, “the shortening of value chains, already seen with the concept of sustainable development, is leading to increasing investment in and around Europe and, consequently, the Mediterranean. There’s less of an advantage in manufacturing on the other side of the world."

FDI down by 35%

As a result, Southern Mediterranean countries are actively campaigning to take advantage of this reorientation of investment, emphasizing their agreements with the European Union. “In the North, the investment promotion agencies (IPAs) are opening up again, but still with a filtering in place," says Emmanuel Noutary.

 
According to the UNCTAD (United Nations Conference on Trade and Development), developing regions and transitional economies proportionally have been the worst affected by the pandemic’s impact on investment in global value chains and that based on natural resources.

Its 2021 report on global investment reveals that FDI slumped by 35% in 2020, decreasing from $1500bn to $1000bn in one year. Europe-bound FDI dropped by 80%, while that aimed at developing regions saw a less dramatic slowdown (-16% for the African continent). The UNCTAD forecasts that FDI in 2021 will “bottom out before regaining part of the lost ground thanks to an increase of 10 to 15%.” In 2022, foreign direct investment should recover to the levels seen in 2019.

 
* EBSOMED (Enhancing Business Support Organisations and Business Networks in the Southern Neighbourhood) is a four-year programme (2018-2022) financed 80% by the European Union and coordinated by Businessmed (Union of Mediterranean Confederations of Enterprises). Its aims are to stimulate the Mediterranean business ecosystem, promote inclusive economic development and boost investment and job creation in the Mediterranean’s southern neighborhood.
 



Tuesday, November 23rd 2021



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