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Question: Discuss the impact of the COVID-19 Pandemic on FDI flows to your country indicating the sectors most impacted. Include in your discussion, three (3) plausible recommendations as part of recovery efforts to attract FDI to your country.

Answer: Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company. During the impact of Covid-19 Pandemic FDI flows in Trinidad and Tobago have reduced drastically impacting sectors such as tourism, manufacturing, construction, and hospitality industries. With more than 460,000 tourist arrivals in 2018, the tourism sector was hit. Travel restrictions to and from the region, as well as within the region, created economic fallout not only in generating revenue, but also in terms of employment. Several hotels and tourist services have been temporarily closed. Next, the limiting of activity to essential businesses has affected large sections of the economy, even beyond “human contact” industries such as bars, restaurants, or sports games. For instance, the construction sector and most of manufacturing are considered non-essential and had cease activity until at least April 15, causing business investment is likely to drop. One project to highlight is the La Brea Dry Dock Facility, a US$500 million investment. The facility is scheduled to be constructed over the course of a three-year period. With the ongoing COVID-19 crisis, this large investment has been delayed. Also, due to reduced demand for fossil fuels, compounded by an oil price war between Russia and Saudi Arabia, energy prices have dropped significantly to historic lows. A reduced value of energy exports is transmitted to lower GDP growth through consumption, investment, and employment effects, again lowering growth expectations. Finally, with Covid-19 travel restrictions, a sharp global decrease in flights and a reduction of factory operations in first China and then other countries, have reduced industry energy demands in areas like manufacturing which additionally affected oil and gas prices. Trinidad was also negatively impacted by the Organization of Petroleum Exporting Countries to cut production hence with an estimate of 50% cut in price from January to March, 2020 this lead to a projected revenue loss of TT$4.5 billion. Reduction in global demand for methanol has also impacted the country as the Canadian methanol company Methanex idled one of its two plants in Trinidad contributing to a further reduction in revenue and a knock –on effect on other aspects of the economy creating an even greater financial loss to the outlook of the country.
Just as the adverse health effects of COVID-19 will not vanish immediately but will be resolved in stages, so too will the global economy recover in stages, across industries and around the world. FDI can help integrate Trinidad and Tobago into the global production chains, and has done so already in the case of many emerging countries. The trick is to attract “Quality FDI” that links foreign investors into the local host country economy. Quality FDI may be characterized as contributing to the creation of decent and value-adding jobs, enhancing the skill base of host economies, facilitating transfer of technology, knowledge and know-how, boosting competitiveness of domestic firms and enabling their access to markets, as well as operating in a socially and environmentally responsible manner. To achieve this, Trinidad and Tobago need tailored policies to support a smooth integration of indigenous and foreign firms into world-wide supply-chain networks.
Firstly, contribute to the set-up of Investment Promotion Agencies (IPA), they are well-positioned to help governments deal with the effects of the pandemic. Investment Promotion Agencies (IPAs), charged with attracting and facilitating FDI, are also working with their clients and local networks of foreign affiliates to facilitate business collaborations and assist government efforts to combat the pandemic. A successful IPA could target suitable foreign investors and could then become the link between them and Trinidad and Tobago economy. On the one side, it should act as a one-stop shop for the requirements such investors demand from the host country. On the other side, it should act as a catalyzer to Trinidad and Tobago domestic economy prompting it to provide the top notch infrastructure and the ready access to skilled workers, technicians, engineers and managers that may be required to attract such investors. Moreover, it should engage in after-investment care, acknowledging the demonstration effects from satisfied investors, the potential for reinvestments, and the potential for cluster-development as a result of follow-up investments.
Secondly, as part of recovery efforts to attract FDI, Trinidad and Tobago can gradually open markets and allow for FDI inflows by reducing restrictions on FDI such as trade barriers should be reduced, as they have an indirect effect on foreign investors’ investment allocations. For example, tariffs on the import of manufacturing inputs make these goods more expensive to procure, and in turn impact the choices that global manufacturers make about where to invest. Likewise, non-tariff barriers such as complex rules of origin and import quotas increase the cost of doing business and have a negative effect on FDI. Provide open, transparent and dependable conditions for all kinds of firms, whether foreign or domestic, including: ease of doing business, access to imports, relatively flexible labor markets and protection of intellectual property rights.
Finally, negotiations on bilateral investment treaties with preferred countries should be accelerated. By engaging with such countries to, among other things, level the playing field for exporters, commercial relations with investors will be facilitated and strengthened. This is an affordable way to make Trinidad and Tobago a more attractive investment destinations, which will be key for economic revival. Further, the process of negotiating such bilateral agreements will create an important opportunity for businesses in emerging markets to engage in policy advocacy. Local private sector leaders will be able to help shape the agreements in a way that spurs the recovery of their economies, improves the overall regulatory environment, and advances adherence to the rule of law in commerce.
With these plausible recommendations for FDI, it can be foreseen that Trinidad and Tobago will gradually recover from the economical fall caused by the impact of Covid-19.