Countries emerging from long years of economic mismanagement, conflict and misrule are more vulnerable to the effects of the Covid-19 crisis as they are not fully prepared economically, logistically and technologically to face such sudden challenges. Poor countries which desperately need external resources in the form of capital, technology and human force to stay afloat are going to suffer the most. The United Nations Conference on Trade and Development (UNCTAD) forecasts in its report entitled Impact of the Covid-19 pandemic on trade and development: transitioning to a new normal that global foreign direct investment (FDI) flows will plunge by a whopping 40 percent in 2020 compared to $1.6 trillion recorded in 2019.

Given this gloomy picture of the global economy, FDI flows are at their lowest level. Various reports by international agencies including UNCTAD show that the least developed countries are far behind in digitising their economies. Most of the least developed countries are highly dependent on FDI for financing to bolster their economic resilience during the crisis, push economic transformation and create jobs to bounce back. A number of companies have shifted their operations from countries that are at high risk from the health crisis to relatively resilient countries or diversified their operation bases. Due to supply chain disruptions caused by Covid-19, multinational enterprises are re-evaluating their global footprint and refreshing their operation strategies. Some multinational companies have shifted operations from China to India, Vietnam and other emerging economies. This is testimony to how sensitive investors are becoming due to Covid-19.

Myriad of incentives

To benefit from this trend, aspirant FDI destination countries are competing to roll out the red carpet to potential investors by offering a myriad of incentives. They are also making efforts to show their capability to cope with such crises to assure them that investments will be safe. India is the front runner in calibrating policies and strategies to woo global firms packing up and shuffling out of China. Even state-level competition is visible in India where key states including Uttar Pradesh, Odisha, Haryana, Gujarat, Punjab and Assam, to name a few, are scrambling to lure investors.

The developing countries have been rushing to come up with strategies with fresh incentives and policies that are expected to attract more investment. Strategies introduced by host governments include interventions, simplification of land acquisition and business process, and digital systems for the approval process. The least developed countries are not necessarily the most attractive destination for foreign investors due to lack of appropriate investment ecosystems and several supply-side constraints, including lack of skilled human resources, dilapidated and deficient infrastructure, limited logistics services and digital backwardness.

Covid-19 is not only impacting investments but also investment negotiations and agreements that are going to hurt the promotion efforts of poorly prepared countries for such a crisis. For many prospective investors, this crisis is an opportunity to evaluate the capacity of prospective host countries to create an investment-friendly environment. Investor priority has shifted to countries which are found to be crisis resilient with the necessary health infrastructure and safety measures.

Investors have given high priority to destinations which are technologically and digitally well prepared to facilitate businesses. A World Bank survey shows that 58 percent of multinational companies turned to digital technologies to optimise capacity and improve logistics, 37 percent to diversify suppliers, and 18 percent to diversify production sites. Some firms (14 percent) are shifting production closer to consumers by near-shoring or reshoring. Diversification of suppliers and geographic location is going to have a remarkable impact on global trade and investment amid this economic dislocation.

Countries which are aspiring to become preferred investment destinations need to rapidly transform digitally to make themselves capable of providing online and digital service delivery and information sharing. Such nations including Nepal need to rapidly transform themselves to grasp digital technologies and apply them to business procedures, service delivery and information sharing. Nepal needs to make a lot of effort to catch up with better-performing countries in terms of FDI. It needs to demonstrate to international investors that even during the pandemic, the government has been committed to incentivising prospective investors and offering facilitation services with digital and online mechanisms to those who have been doing business here.

Strengthening infrastructure

Digitising services and strengthening the information and communication technology infrastructure should be the key priority for Nepal to win the confidence of investors. This is a great opportunity to show Nepal's resilience amid such a catastrophe by creating an investment-friendly environment. This is a very opportune time for host country governments to bring into effect new policies that will enhance their comparative and competitive advantages. Informing investors about government programmes, helping them to cope with the crisis and supporting their ongoing investments or operations are immediate priorities.

For Nepal, this is a great chance to create investor confidence in its investment environment. The country should cash in on the situation to become the most viable investment destination at a time when global companies are seeking new bases for new investment. To tackle the worsening effects of Covid-19, it is high time Nepal followed the path of other countries which are responding with favourable policy reforms. Providing more incentives, improving digital infrastructures, promoting start-ups, assisting investors and developing health infrastructures to the international level should be the government's focus to become a more competitive destination. The government should also ensure reliable, quality and fast medical facilities and associated infrastructure to deal with any health issues. We can begin by digitising industrial parks and providing better facilities so that international investors will see a better environment to do business. We need to prove that Nepal is not only urging foreign investment but also sincerely working to set a favourable ground for investment.

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