COVID-19 and the impact on FDI: Invest Romania should adapt its strategy as the business community is stuck at home

Newsroom 30/03/2020 | 12:27

Projections of the economic impact of COVID-19 are becoming more serious by day. Both greenfield investment projects and expansion investments will be affected by this new reality.

By Claudiu Vrinceanu

 

Foreign direct investment (FDI) into Romania are on a downward trend since the beginning of the year, and the pace of decline will increase in the context of COVID-19 evolution. However, what recovery solutions national Investment Promotion Agencies (IPAs) can have, for exemple, Invest Romania?

FDI into Romania fell by 11% year-on-year in January, to 451 million euro, according to the most recent date. Equity investment (including estimated net reinvestment of earnings) amounted to 258 million euro and inter-company lending totalled a net 193 million euro at the end of January.

Moreover, the coronavirus outbreak may reduce the inflow of global foreign direct investment (FDI) by 30 to 40 percent, said the United Nations Conference on Trade and Development, a UN body that deals with trade, investment and development issues.

“A new UNCTAD analysis of the impact of the coronavirus pandemic on the outlook for global foreign direct investment shows that the negative impact will be worse than previously anticipated,” stated the press release.

The new UNCTAD analysis of how the coronavirus pandemic will affect global foreign direct investment prospects shows that the negative impact will be worse than previously projected on 8 March. “Updated estimates of the economic impact of Covid-19 now suggest that the pressure to reduce FDI flows may range from 30 to 40 percent in 2020-2021, much more than previously forecast 5 to 15 percent.”

 

The hardest-hit industries

The hardest-hit sectors are the energy and basic materials industries (-208% for energy, with the additional shock caused by the recent drop in oil prices), airlines (-116%) and the automotive industry (-47%).

Developing countries and emerging economics are the ones most at risk, where a downwards of 30% in foreign investment is expected.

As the economic development community is stuck at home, the foreign investment specialists and consultants must adapt   to the new reality.  For example, the foreign investment advisory firm Wavteq tried to identify those sectors that are expected to shore up global flows of FDI, which will inevitably take a hit, and remain a possible target for investment promotion agencies (IPAs) like Invest Romania and economic development organisations (EDOs).

According to specialists in Foreign Direct Investment, sectors such as e-commerce, cybersecurity, renewable energy, healthcare and biotechnology could have a good potential for foreign investment amid the current global crisis.

 

The Invest Romania body must adapt its strategy

For every Invest Promotion Agency is important to detect now which sectors have potential for new FDI and which do not, because now the business sentiment has changed. For example, Invest Romania must change the approach.The body is part of the Economy Ministry, as the “one-stop-shop” for foreign investors, and an ideal place for an investor to build an institutional link with public authorities.

In recent years, Invest Romania, the governmental department dedicated to attracting foreign investors, has been engaged in constant activity, but has not shined through special initiatives, so it remains to be seen what the strategy of this structure will be in 2020, as well as in the post COVID-19 context, as the crisis will go into the next stage.For the time being, as a simple office within a ministry, the Invest Romania brand could start to aspire to the title of Government Agency in 2020, which would turn it into a larger structure, with a larger number of specialists and a truly global vision.

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