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The Briefing

Covid–19: Now is the time to plan for the recovery

Covid–19: Now is the time to plan for the recovery  Banner

by Mark O’Connell

16/04/2020

Coronavirus: The pandemic‘s effects will be felt for months away, but the current hiatus provides a window for innovation, research and development

Today’s economic environment is like nothing the global business community has faced before. The coronavirus pandemic will undoubtedly have a profound impact on foreign direct investment.

The recent pronouncement by Jerome Powell, the Federal Reserve chairman, that the US may already be in recession was more of a footnote than global news, which demonstrates the gravity of this sudden but hopefully short economic trauma.

When it comes to inward investment, Ireland must consolidate relationships to mitigate the worst effects of Covid–19 and shore up the foundations that will accelerate recovery.

Capital expenditure, greenfield investments and expansions are being affected by facility closures, significant supply chain gaps and production limitations. Companies are scaling back expansion plans in the short–term and are likely to push out investment decisions by at leastsix months. The United Nations Conference on Trade and Investment has said that foreign direct investment (FDI) flows could fall by more than 30 per cent. The focus must be on protecting the central components of any economy so that they can be rebooted in the months ahead.

Companies that were scoping global market opportunitie are now consumed by the more immediate challenges of workforce wellbeing, supply chains, mobility and liquidity. These topics are going to dominate the virtual boardroom agenda and make FDI targets for 2020 unachievable. In this climate, this year’s capital expenditure, which is generally used by companies to upgrade or maintain physical assets, could be down by as much as 50 per cent. This assessment follows the 40 per cent drop last year, which was influenced heavily by global uncertainty. Project numbers are likely to dip by at least 30 per cent given that economic life will all but stop for at least one if not two quarters.

While there is an understandable eagerness to seek investor perspectives, it would be inappropriate to do so with sectors and businesses facing potentially existential challenges.

Instead, the task at hand must be to stay close to both existing investors, and those with whom there was active dialogue before Covid–19. For investment promotion agencies (IPAs) such as the IDA, nurturing relationships and boosting confidence and trust as a partner are vital strategies.

This hiatus does provide a window for innovation, research and development. IPAs can foster long–term relationships and engagement with clients and prospects that will evolve into strengthened partnerships when confidence returns. It is vital that they seek to provide transparency, up–to–date briefings and, where appropriate, fiscal support.

Many foreign investors are overwhelmed with the pace of change. They will be facing daily challenges in the coming weeks, including homeworking, employee repatriation and navigating financial support. Supply chain diversification will be an issue for many, as will movement of staff across borders.

IPAs will have to adapt rapidly to understand and address these new issues. This will involve working with colleagues across the globe. These organisations, and their governments, may also need closer collaboration with the local private sector and enhanced connectivity with professional service firms, industry organisations and international trade bodies to provide additional expertise.

At this time of disruption, economic developers in Ireland, Britain and further afield would do well to reflect on their investment attraction strategy and determine whether it is futureproof. Which sectors are likely to be most resilient, which are vulnerable and which might thrive in a new world order? Clearly, sources of FDI are likely to experience considerable upheaval. There will be winners and losers. Like everyone, there may be more questions than answers right now but it’s important the business community start asking then.

Mark O’Connell is chief executive of OCO Global, which provides trade advice to Enterprise Ireland, the British Department for International Trade and a number of private organisations such as Santander and PwC