FDI attraction for developed economies is starting to read like Hemmingway’s novel of the beleaguered fisherman facing an epic battle to make his catch and restore his reputation. The statistics on FDI in 2020 are bleak. Last week, UNCTAD’s Global Investment Trends Monitor highlighted a 49% drop in FDI in the first half of 2020 compared with the same period last year. It also reported that developed economies were disproportionately impacted, with a 75% reduction.
Covid of course is the main villain of the piece, but like other areas of the economy that are critical– think retail, there was already health warnings for FDI – protectionism, politics and supply chain insulation. Another underlying issue has been the determination of place stakeholders to stick with the existing model of investment attraction and try to simply do it better, not differently.
Investment attraction may have kept abreast of the hot new sectors as they came along but it is an industry that has operated broadly with the same modus operandi and limited incremental innovation for two decades. Few industries can afford to stand still – especially in the digital era. More effective execution has merit and has definitely had impact and results but it won’t be enough in the post Covid era. And in countries which have a strong national agency but poorly resourced regional efforts, there is also the legacy of weaker regional investment performance.
Investors now look set to take the lead and follow a new dispersed model of FDI, seeking skills wherever they may be over specific locations. Co-working and connectivity facilitates this, all with potential upsides for the companies who can capitalise on lower operating costs. The market is leading with major companies starting to recruit remote knowledge workers directly. (Check out weworkremotely.com) The old broker role of economic developers between location and business for FDI at least (the nature of brokerage for smaller export orientated companies means there is a higher dependence on advisory services due to lack of capacity) is in danger of becoming obsolete and the experience aspect marginalised. But locations still want and need FDI – rightly so, even in a depressed market - and they will continue to make it a core objective. Inevitably that will be smaller projects and employment numbers, but it does make sense for companies to still have clusters of employees for training, management, employee wellbeing and to maintain company culture. Many more regions can now compete for that investment however as scale has decreased in importance as a location determinant.
Economic development professionals could be fishing in the wrong waters – they need to bring in skills to their places and partner with other like places that can enhance and complement their offer. This is at least as important now as investor targeting and conversion. To do that, a new holistic approach is required. It’s not just about the sector proposition or policy interventions. There are new workstreams focused on placemaking, people and partner locations.
Economic developers have a chance to evolve their models during this recovery period. Investors, like the big fish (and the sharks!) in Hemmingway’s novel, will always be drawn with the right bait.