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How digital investment can help the COVID-19 recovery

COVID-19 has changed the way we live and work almost overnight. Analysts are struggling to keep pace with the impact on economies, sectors and firms. One thing that we already know, however, is that this crisis is accelerating an already growing trend towards digitalization.

 

From virtual meetings to automated factories, online orders to drone delivery, digital services are growing in importance, permeating an increasing number of sectors and activities. Digitally agile firms are adapting to the ongoing crisis more successfully, and others are rapidly skilling up in response to challenges to their business models.

For governments looking to drive economic recovery after the pandemic, supporting such digital competitiveness will be key. One way is through foreign direct investment (FDI) in the digital economy, in other words, “Digital FDI.”

The power of investing in the digital economy

There is significant evidence that FDI can bring technology, know-how, jobs and growth. FDI is also often the largest source of finance for developing economies. Just like traditional firms, digital firms invest abroad to be close to customers, access local knowledge, open new markets and more.

Yet attracting FDI in the digital economy requires different policies and regulations, because digital firms have business models that vary from traditional brick-and-mortar businesses. Digital firms rely heavily on data and technology, often involve platform economies and leverage non-traditional assets.

The World Economic Forum’s new Digital FDI initiative seeks to identify policies, regulations and measures that governments can adopt to attract such investment. We’re working with technology firms, governments and experts to answer the question: What is the ‘secret sauce’ to creating a digital-friendly investment climate? The answer will become even more important in the looming economic downturn where there may be fewer resources for investment and therefore more competition to attract scarce capital.

Building on a conceptual framework laid out by the United Nations Conference on Trade and Development (UNCTAD) in its 2017 World Investment Report, enabling policies, regulations and measures fall into three pillars.

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