High value-added foreign direct investment (FDI) creates foreign exchange and increases productivity, employment, exports, and linkages with local companies while encouraging knowledge and technology transfers.
FDI is particularly important in Latin America and the Caribbean (LAC), as it is the region’s primary source of external financing, outstripping both international aid and remittances. After a five-year slump, FDI flows to LAC increased by 13.2% in 2018 compared to 2017, reaching more than US$184 billion.
However, the economic crisis caused by COVID-19 may bring about a 30% to 40% drop in global investment flows between 2020–2021, according to the United Nations Conference on Trade and Development (UNCTAD). The organization noted that since the start of the pandemic, 61 of the 100 largest multinational enterprises (MNEs) had issued earnings revisions, and it is estimated that the creation of new subsidiaries (greenfield investment) will fall by 15% in 2020.
The impact will vary from sector to sector, as EY has observed. While tourism, vehicle manufacturing, aviation, entertainment, real estate, coal, oil and gas, and luxury goods will suffer a significant decline, other sectors likeagro-manufacturing, information and communication technologies, logistics, consumer goods, pharmaceuticals, medical equipment, and financial services may emerge unscathed.
Like any crisis, the COVID-19 emergency is also generating opportunities for growth in sectors such as e-commerce, digital technology, cybersecurity, biotechnology, healthcare, telemedicine, and renewable energy. Temporary employment opportunities have even emerged in some of the industries, particularly logistics for e-commerce.
Given the importance of FDI and the economic impact of COVID-19, LAC’s investment-receiving countries must support both, companies that are hardest hit by the crisis, and those with a chance to grow, as their economies will benefit from businesses staying open and those seeking growth and expansion. Appropriate mechanisms need to be put in place to leverage these processes.
The role of Investment Promotion Agencies (IPAs)
Some institutions that have experienced these changes firsthand are IPAs, whose role is to attract FDI projects to their countries or territories. But in times of crisis, a task that is already challenging becomes more complex.
The COVID-19 crisis is forcing IPAs around the world to rethink their strategies and to be creative and proactive. In the short term, their new role is to help close information gaps, coordinate responses to the crisis, facilitate the transfer of the workforce from one sector to another, and strengthen investor aftercare services.
Several agencies in countries like Hong Kong, Ireland, Estonia, Australia, Korea, Costa Rica, and El Salvador are adding value by providing innovative digital solutions.
The government of Estonia, one of the most digitized countries in the world, organized an online hackathon to tackle the crisis with the support of the Estonia Investment Agency. One of the winners was Share Force One, a B2B platform that connects workers with companies that urgently need to find temporary employees.
Estonia’s IPA also helped develop in record time a crisis-response chatbot called Suve. The chatbot uses artificial intelligence software to respond in several languages to web queries, such as healthcare, business support, transportation, and supply chains, related to the coronavirus crisis. IDA Ireland is helping the Irish Ministry of Health get foreign companies in the MedTech sector to produce more ventilators for the domestic and European markets. The ICEX Invest in Spain is giving free webinars and providing support for companies in the vehicle, textile, and MedTech sectors around manufacturing medical devices.
Other IPAs like El Salvador’s PROESA and Costa Rica’s CINDE are operating platforms to channel donations and healthcare products that some companies have offered. CINDE is also participating in Costa Rica’s collaborative design (link in Spanish) initiative in which domestic companies and those operating in the country’s free trade zones join forces to create healthcare teams to tackle COVID-19.
Invest in Atlanta offers free access to online tools for companies to calculate how the crisis will impact their business and speeds up the process of opening and registering companies online. And Invest Korea publishes detailed information on the pandemic daily on its home page.
Investment Promotion Agencies can respond to COVID-19 by:
- Implementing or strengthening existing aftercare or investor services departments for investors that are already operating in the country.
- Being extremely proactive and keeping in touch with their clients to understand their needs and plans through email, social media, and text messaging. Also making themselves available 24/7, and updating their customer relationship management (CRM) systems and client databases to facilitate monitoring and follow-up.
- Providing support for companies that are adapting their manufacturing lines to produce medical products and other essentials.
- Facilitating labor intermediation between companies with a surplus of temporary workers and those with a need for similar employee profiles to prevent layoffs.
- Acting as a one-stop-shop by handling administrative processes online and unblocking bottlenecks.
- Identifying local suppliers to provide foreign companies with alternative local input sources.
- Maintaining the website up-to-date with the government’s response to COVID-19 as these plans may affect foreign companies.
- Facilitating and channeling donations of cash or products from companies to vulnerable sectors of the population, in coordination with the government.
Preparing for the post-crisis
Governments and IPAs also need to prepare for when the crisis subsides. They need to be ready to respond quickly and attract FDI when companies return to their investment plans. IPAs need to start thinking now about what the global business environment will be like after the pandemic, monitor their country’s strategic sectors, analyze how global supply chains are configured, and consider their country’s new value proposition.
IPA staff need to receive training in communication technology systems, mergers and acquisitions, and new investment promotion trends and tools. The IDB’s free online program Towards the Next Generation of Investment Promotion Agencies is one good training option worth considering.
The IDB acknowledges how hard IPAs in LAC are working to manage the pandemic and the economic recovery that will follow it. We are as committed as ever to structural and digital transformation and continue to support them in their work, promoting and facilitating investment, providing aftercare, and building their staff.
 CEPAL, 2019
 Financial Times, 2020
 Frost&Sullivan, 2020