GENEVA, Switzerland — 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 released on 4 May, 2020.
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.quote.~ Dr Mukhisa Kituyi – Secretary General of UNCTAD.
Investment policies counter the crisis in numerous ways
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.
Policies to facilitate and retain investment, aftercare services on the rise
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.
The crisis, and the resulting closure or disruption of regular governmental services, have also accelerated the use of online tools and e-platforms that enable the continuity of essential services.
In its latest IPA Observer of April 2020, UNCTAD has compiled current efforts and best practices of IPAs worldwide in responding to the emergency. They range from investment incentives to interventions that specifically target the health industry.
Investment incentives seek to enhance production in the health sector
Several countries have included incentives for the rapid development of medication and vaccines in their state aid packages.
Other incentive schemes concern the expansion or conversion of production lines to increase medical supplies. A third group of incentives aims to enhance contracted economic activities in general.
Acquiring shares in crisis-affected companies
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.
Supporting local SMEs in supply chains
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.
Protecting national security and public health through foreign investment screening
The COVID-19 pandemic has resulted in intensified screening of foreign investment for national security reasons. New measures aim at safeguarding domestic capacities relating to health care, pharmaceuticals, medical supplies and equipment.
Furthermore, governments employ FDI reviews to protect other critical domestic businesses and technologies that may be particularly vulnerable to hostile foreign takeovers.
Other state intervention in the health industry
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.
Instrumentalizing intellectual property
Given the extraordinary health emergency and R&D challenges related to COVID-19, countries have taken measures to encourage the joint use of IP-protected technologies to speed up effective R&D and to facilitate mass production of needed treatments, diagnostics and vaccines. This includes facilitating the grant of non-voluntary licenses to make use of existing technologies.
COVID-19 and IIAs
The COVID-19 pandemic slows down the treaty-making pace. Several negotiation rounds for bilateral investment treaties (BITs) and treaties with investment provisions (TIPs) scheduled for 2020 have already been cancelled or postponed.
The COVID-19 pandemic and its mitigation measures are also likely to result in a reassessment of countries’ development plans and strategies, including with regard to the role of IIAs and the attainment of the Sustainable Development Goals.
Although IIAs provide legal stability and predictability to foreign investors, they can also have an impact on contracting parties’ regulatory powers to pursue public interests and can place constraints on government measures, including those related to health policies.
Pandemic likely to have a lasting impact on investment policy-making
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.
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.
“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.