Innovation capability, business competencies and operating procedures through integrating latest technology, have become strategic factors to overcome economic realities of the crisis. Sector-focus on healthcare and e-commerce and the implementation of precautionary measures to gradually re-open the economies are the need of the hour. The question is, how can investors with a long-term perspective tackle the challenges and lessons learned from the pandemic and turn them into investment opportunities. And further, how can a strong focus on the SDGs be the signpost to tackle the pandemic with technology-driven impact investments.
Risk, Return & Impact will be the “new normal” for investors
Based on nearly every economic projection, the “new normal” may last for years … at least until people feel safe enough to invest or invest into th market. So the timing of these phases is fluid. Pre-crisis the importance was on a traditional return on investment (ROI) which identifies the primary financial returns of an investment while controlling and mitigating the risks through a thorough due diligence. Impact Investments, however is the, “after the crisis strategy”. It adds another dimension to the formula, which allows investors to measure their investment project using a more advanced 3D model. The Impact dimension is hereby not limited to monetary returns, it also includes macro-economic factors, impact on the individual ecosystem as well as the business environment of the market, the Foreign Direct Investments (FDI). Further, the impact of one strategic investment can lead to bandwagon investments, where other companies in the same sector also place FDI to secure their market share. The Impact angle also entails a wide array of soft factors such as increased attractiveness of the location for talent, establishment and profiling of the location as a major hub for the specific sector or technology as well as
likelihood of the investor to access further re-investment opportunities in the same market through its initial strategic investment. All of these dimensions are included in the Impact consideration, magnifying the perspective from a project-based to a more market and ecosystem based point of view.
The United Nations Conference on Trade and Development (UNCTAD) has identified a USD 2.5 trillion financing gap annually to achieve the Sustainable Development Goals (SDGs) by 2030. FDI constitutes one of the key elements in closing this funding gap. The pandemic has allowed a rapid implementation of technology in various sectors and relevance of core competencies are being defined. The particularity of an unprecedented global occurrence such as Covid-19 is that silver lining for investment opportunities arised in both, developed and developing countries, especially considering the 2030 agenda of the SDGs. Impact Investments in combination with an accelerated use of technology and implementation of Industry 4.0 will allow an unforeseen leverage for strategic investors. As much as Covid-19 pandemic presents a challenge and causes major economic disruptions, it not only reveals but actually requires a response from the investor community, specifically in emerging markets. Economic, environmental and social aspects are the elements of sustainability. A paradigm change and rethinking of the ROI could allow investors to gain a strategic advantage in their long-term strategy.
Prioritizing the SDG agenda in times of exponential technology advancements
Globally leading FDI destinations are revisiting their investment promotion strategies and unique value propositions in light of Covid-19. While a certain pandemic mode currently prevails, investors are already exploring opportunities building the “new normal”. Impact Investments 4.0, a symbiosis of impact investing and the rapid integration of Industry 4.0 technologies could act as a lever to utilize a first mover advantage arising from the pandemic. With ten years to go on the SDG development agenda, Foreign Direct Investments (FDI) transform into a key economic tool to accelerate innovation and the implementation of technology.
Vaccination development and medical infrastructure, remote working environments, revitalization of urban centers through green initiatives, the sustainable provision of energy and electricity as well as the rapidly changing consumer behavior and arising new business models are only a few examples where Impact Investment 4.0 has the ability to have a lasting effect achieving technology implementation, financial returns and sustainable impact at the same time. Furthermore, Impact Investment 4.0 as a model has the potential to become a major contribution in the journey of achieving the Sustainable Development Goals (SDGs). While many sectors may witness disruptive shifts in market leadership, investors have the ability to drive this transformation nurturing the lessons learned and prevailing standards of the “new normal” towards a safer and healthier society and revised operating models utilizing latest technology and enabling innovation on any level of the economy.
Emerging sectors and ecosystem readiness
Investment Promotion Strategy in light of Covid-19 and the SDGs allows FDI destinations to align their value propositions while focusing on investor aftercare (retention & expansion) and pursue intensified engagement to attract new investors to the market utilizing technology. With a focus on promoting impact investments or Impact Investment 4.0 in particular, the readiness of the ecosystem as a whole to accommodate those type of investments with a strong sector orientation at the same time is crucial. If a location is able to establish itself as a hub for innovation and a test bed for technology, a comparative advantage will arise. If the FDI destination is then capable of not only attracting FDI to its own market, but channel investments and technology to other countries, especially those countries the SDG agenda is focusing on, it has the ability to become a global FDI center.
This center function will allow the FDI destination to become a pivotal hub for technology and innovation and a core magnet for Impact Investment 4.0 as the FDI center acts as a multiplier in terms of impact, meaning, if a high-technology company invests in the FDI center, the center allows that company to leverage its ecosystem and disseminate its technology into other markets, channeling FDI through the center and allowing the center to also benefit from those subsequent investments. Ecosystem readiness of the FDI destination, which establishes itself as an FDI center for Impact Investment 4.0 is key.
This concept allows leading FDI destinations to become a driver in achieving the Sustainable Development Goals (SDGs) in their own economies, but more importantly in least developed countries (LDCs), which the 2030 agenda of the United Nations is focusing on. The Covid-19 pandemic emphasizes the need for this concept even more as LDCs in particular often lack the ability to become recognized by global investors as attractive FDI destinations and are overall in urgent need for major investments in infrastructure, education and healthcare. Impact Investment 4.0 might be a solution to tackle this challenge, close the financing gap successfully and ultimately achieve the Sustainable Development Goals (SDGs) by 2030.
Author: Sejal Hule (The Union Of Arab Academics -TUOAA)
