THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 World Bank Investor Confidence Survey: Evidence from the Quarterly Global Multinational Enterprises Pulse Survey for the Second Quarter of 2021 October 2021 Abhishek Saurav, Peter Kusek, and Mark Albertson 1 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Key Findings • Overall, surveyed multinational enterprises (MNEs) in developing countries are approaching pre- pandemic output levels, although major differences remain between firms at the sector and regional levels. The share of firms experiencing at least one adverse impact of the pandemic has fallen from 93 to 78 percent of respondents. The gap between small and medium enterprises (SMEs) and large firms that was observed over the previous two rounds of the MNE Pulse Surveys also appears to be reduced. • Inflation pressures are impacting MNE affiliates through rising input costs. Price pressures witnessed in the first quarter (Q1) of 2021 have continued, with 47 percent of survey respondents experiencing rising input costs compared to before the pandemic. The drivers of rising input prices are supply chain disruptions and rapid increases in demand. The survey also indicates that larger firms are more adversely impacted from rising input costs than smaller firms. Additionally, liquidity seems to be slightly deteriorating, adversely affecting 64 percent of respondents in the second quarter (Q2), as compared to 48 percent in the previous quarter. • MNE affiliates in the manufacturing sector have been more adversely affected by the pandemic and continue to face a longer road to recovery; a result driven in part by the fact that some services (e.g., information and communication services, finance and insurance, etc.) have done relatively well during the pandemic. The difference is particularly pronounced in terms of employment with 77 percent of surveyed manufacturing MNEs indicating they reduced their workforce during the pandemic compared to 37 percent of services MNE affiliates. Additionally, the share of manufacturing firms reporting adverse effects of the pandemic in Q2 2021 is greater than the share of service firms in all ten business categories measured. • MNEs’ future investment plans have become slightly more optimistic, providing early signs of an improvement in the investment outlook – although the specter of uncertainty remains. The share of surveyed MNEs expecting to increase investment over the next three years has reached a pandemic high (21 percent) – driven by changes or expected changes in regulations and policies for foreign investors as well as insourcing of production. At the same time, uncertainty remains the primary factor limiting the appetite of firms to invest. 86 percent of surveyed MNE affiliates planning to leave investment plans unchanged state uncertainty as the main reason– a level comparable with Q1 2021. • Looking ahead, the key skills sought by MNE affiliates across sectors and regions related to problem solving and task management. More than two-thirds of firms expect this requirement to increase. Social skills are the second most sought after, cited by 45 percent of firms. This trend is observed across all sectors, size, and business models. It is slightly more pronounced among firms headquartered in Europe. Three-quarters of firms plan on increasing the proportion of their workforce with a tertiary education over the next three years. These findings suggest that firms may be looking for more qualified workers in order to improve overall skill levels. • During economic recovery, to rein in uncertainty and remain competitive in the global FDI market, policymakers should act now. In the near term, policymakers should strengthen policies to foster investment, including improving the legal environment and easier approvals for foreign-owned businesses. In the longer term, shifts in global production may require policymakers to boost their countries’ investment competitiveness. Therefore, governments should restore investor confidence by maintaining a stable and predictable investment policy environment and resisting protectionist policies. 2 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Introduction In the second year of the COVID-19 pandemic, the world continues to grapple with its health, social, and economic ABOUT THE SURVEY impacts. There are signs of recovery, but supply chains, The survey was administrated online from 19 July to workplaces, and daily life continue to be affected. As 13 August 2021. The resulting sample comprises 300 vaccines have begun to become available, there is hope of MNE affiliates (firms with full or partial foreign life returning to a “new normal�, but work remains. ownership) across 36 developing countries. The Since the onset of the crisis, the World Bank’s Global sample was evenly distributed across the six Investment Climate Unit has been undertaking quarterly developing regions following the World Bank ‘pulse’ surveys of multinational enterprises (MNEs) Group taxonomy, and across manufacturing and operating in developing countries to assess the effects of services sectors in each region. the pandemic on the companies’ operations and the Survey data suggest that MNE affiliates in the outlook for foreign direct investment (FDI).1 MNEs play services sector are less adversely affected as a critical role in the global economy, and FDI is a key compared to the manufacturing sector. This is source of capital investment and employment in driven by sample composition because FDI is higher developing countries, making it an important factor in in some services sub-sectors than others. The economic recovery prospects. services sample is comprised mainly of financial Looking back on the five previous rounds of the survey services (22 percent), professional, scientific, and reveal the steady recovery that has been underway. The technical services (22 percent), and information and average effect of the pandemic on MNE revenues, among communication services (20 percent) – sectors less surveyed firms, has improved from as low as 40 percent adversely affected during the pandemic. However, below pre-pandemic levels in Q1 2020, to near break even sub-sectors such as wholesale and retail trade (10 in Q2 2021 (Error! Reference source not found.).2 percent), and accommodation and food services (4 percent), were more severely affected, but comprise Nonetheless, results from the most recent survey suggest a small share of the services sample (Figure 19). The there is large heterogeneity in outcomes and that firms manufacturing sector is more evenly distributed face evolving pressures. There is an increasing divide in among the sub-sectors. Figure 1: Average impact of the COVID-19 pandemic on MNE affiliates over 2020-21 recovery along regional and sectoral lines as manufacturing industries and manufacturing-intensive 0% -2% regions lag services. Survey results also indicate that -3.0% uncertainty around future demand is the main factor holding back additional investment and that workforce -12% -14% compositions are rapidly evolving to meet increased -25% technological adoption. As economic conditions continue to improve, there are opportunities for policymakers in -37% developing countries to support new investment that can -40% capitalize on evolving workforce needs and trends in -50% Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 technology. Investment Revenues Net income Data labels: Net income values 1 Full results from prior rounds of the survey are available at: https://www.worldbank.org/en/topic/investment- climate/brief/multinational-enterprises-global-pulse-survey 2 Chart shows results of survey rounds with different sample sizes and methodologies. Values are percentage differences from 2019. For Q1 2020, n=104. For Q2 2020, n=78. For Q3 2020, n=305. For Q4 2020, n=329. For Q1 2021, n=300. For Q2 2021, n=300. 3 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Firm Performance in the Second Quarter of 2021 The average impact of COVID-19 on surveyed MNEs has information and communication services, finance and diminished to within a few percentage points of pre- insurance, etc.) have done relatively well during the pandemic levels, but the vast majority of MNE affiliates pandemic. in developing countries were still impacted by the pandemic in Q2 2021.3 Seventy-eight percent of firms Demand and output recovery surveyed report at least one adverse impact of the Among surveyed firms, demand and output have returned pandemic in the survey period. This represents an to pre-pandemic levels, following three consecutive improvement from Q1 2021 results, where 93 percent of quarters of gradual improvements starting in Q3 2020 firms experienced an adverse impact. The average (Figure 2). This confirms the finding from the previous magnitude of adverse effects has also stabilized around round of the Pulse survey that MNEs in developing pre-pandemic levels over the past two survey rounds. The countries were on their way to a steady recovery. Similar share of firms reporting adverse employment effects has to the last quarter, about a third of respondents observed dropped significantly since Q1 2021 as has the average negative impacts on demand (compared to 46 percent in impact, but liquidity constraints are becoming more Q4 2020) and 38 percent report their output is still prominent. Overall, the data from the Q2 2021 survey negatively affected (compared to 63 percent in Q4 2020).4 suggest a trend towards recovery for MNEs in developing countries but also increased competitive pressures as relief Survey data suggest that a recovery in output is closely measures expire. MNE affiliates in the manufacturing linked with demand and employment. Of firms reporting sector have been more adversely affected by the pandemic their output was negatively impacted in Q2 2021, 82 Figure 2: Share of MNE affiliates reporting adverse impacts during Q1 and Q2 2021, and average impact during Q2 2021 (n=300) From April to June 2021, what was your company’s performance in your country of operation, compared to the same period in 2019? 70% 64% 62% 62% 50% 47% 30% 38% 32% 34% 31% 29% 29% 10% -10% 1.8% 2.2% -0.9% 0.3% 0.6% -1.2% -1.3% -2.5% -2.0% -2.2% Q1 2021- Share of MNE affiliates reporting adverse impacts Q2 2021- Share of MNE affiliates reporting adverse impacts Average impact Q2 2021 v. pre-pandemic and continue to face a longer road to recovery; a result percent also indicated adverse effects on demand and 68 driven in part by the fact that some services (e.g., percent indicated adverse effects on employment. This 3See Appendix B for additional information on the distribution of responses (histograms for impact categories). 4The MNE Pulse survey rounds are cross-sectional and do not follow the same firms from quarter to quarter. This change in the composition of respondents across rounds may affect results between quarters. Please see Appendix A for information on the sample composition and how it has changed between survey rounds. 4 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 indicates that lagging demand in some sectors is holding manufacturing firms held more inputs in inventory (51 back a complete recovery. percent) as compared to services firms (12 percent). In the short run, these higher inventory-to-sales ratios are Despite average demand and output returning to pre- likely to have a dampening effect on liquidity and pandemic levels, there have been regional differences. income, which is observed in data as well. The results show that 50 to 68 percent of surveyed MNEs in East Asia and Pacific, South Asia, and Middle East and The service sector is less dependent on inputs from North Africa report adverse demand and output effects. suppliers and has therefore been less impacted by rising The incidence of these adverse effects is relatively low input costs and supply chain disruptions. The absence of (below 20 percent) in other regions. The difference in these impacts has allowed revenues for surveyed firms in these impacts highlights the regional divide in economic the service sector to stabilize around pre-pandemic levels recovery and an opportunity for increased policy action. much quicker than in the manufacturing sector. Supply chains and input costs Figure 3: Share of MNE affiliates reporting specific supply chain effects during Q2 2021 (n=60) Supply chain reliability and input cost pressures continued to be a challenge for MNEs in developing economies in You indicated that your company has Q2 2021. Similar to Q1 2021, about a third (32 percent) experienced adverse supply chain effects due to COVID-19. Can you specify? of respondents experienced supply chain reliability issues in Q2. The average magnitude remains largely unchanged Shortage of inputs from 85% from Q1 2021 at one percent below pre-pandemic levels. suppliers Input shortages remain the primary reason of supply chain Delay in receipt of inputs 35% disruptions among the affected firms (Figure 3). from suppliers A large share of MNE affiliates continued to face rising Issues with input quality from 22% suppliers input costs in Q2, similar to the previous quarter. Around half of respondents are still experiencing rising input costs Delay with outbound logistics 22% to your company's customers after an increase of more than four-fold from Q4 2020 to Q1 2021. The average impact of input price shocks has decreased slightly from 3 percent in Q1 2021 to 2 percent Worker productivity and employment in Q2. The main drivers of the observed rise in input prices are extensive supply chain disruptions (69 percent) The share of surveyed MNEs reporting adverse and rapid increases in demand (66 percent). Global supply employment effects compared to pre-pandemic levels chains have experienced significant disruption, resulting dropped significantly from 49 percent in Q1 to 31 percent from shipping capacity constraints as demand recovers to in Q2 2021. This was likely driven by the scaling up of pre-pandemic levels.5 The compounding effects of these production and return to production facilities and offices impacts are best illustrated by significant increases in that began to take place in Q2. The magnitude of this maritime transport costs. In some cases, these costs have impact (i.e., the average change in employment) also risen more than fourfold compared to 2019.6 diminished, from negative 4 percent to negative 1 percent. Surveyed manufacturing firms have been more severely The significant gap between the share of large and small impacted by the rise in input costs, and the shock has MNEs that report negative employment impacts in Q1 resulted in greater than normal inventory holding. About 2021 closed greatly in Q2. In Q2, 32 percent of small firms three in four (73 percent) manufacturing MNEs report surveyed indicated negative employment impacts facing rising input costs, compared to 21 percent of compared with 57 percent in Q1 (Figure 4). Large firms services firms. To protect against these price pressures, showed a modest improvement (from 34 percent in Q1 to 31 percent in Q2). Survey data from successive rounds in 5COVID-19 Trade Watch September 2021. 6According to Bloomberg and the Drewry World Container Index, the spot rate for 40-foot shipping container from Shanghai to Rotterdam was $2,000 in 2019. In Q2 2021, it went up to $9,000. 5 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 2021 suggest that larger firms were more promptly able to Continuing the trend observed in previous survey rescale their workforce in response to recovering rounds, the share of MNE affiliates reporting adverse demand.7 After an initial delay, smaller MNE affiliates impacts to investment continued to fall in Q2. Overall, now appear to be rescaling their workforce. 29 percent of respondents report adverse impacts to investment compared with 37 percent in Q1. The Despite improving employment signals, the share of improvement is not, however, robust across all firms and MNE affiliates reporting negative impacts to worker liquidity is a key driver of investment outcomes. productivity rose to 29 percent in Q2, compared with 13 percent in Q1. Surveyed MNEs that indicated the largest Revenue and profits impacts to worker productivity were predominantly located in Asia (East Asia and Pacific, South Asia) and After a slight improvement in Q1, the share of surveyed MENA. The lagging recovery in those regions is likely MNE affiliates reporting negative impacts to revenues and driven by the composition of firms located there. profits rose in Q2 to 62 percent (compared to 56 and 57 Manufacturing, which remains more affected than percent respectively in Q1). The average impact has services, represents a larger share of the value added in stabilized around 2 percent below pre-pandemic levels Asia (about 24 percent) than in Europe (16 percent) or and is robust across all sectors, regions, business models, Latin America and the Caribbean (14 percent). and sizes. The finding that a higher share of firms have Simultaneously, the rising incidence of COVID-19 cases experienced adverse effects in these areas, while the in Q2 re-introduced restrictions on movement and average impacts remain stable, suggests heterogenous production, thereby reducing worker productivity. recoveries across firms.9 It is possible that firms not experiencing adverse effects are seeing significant revenue Liquidity and investment and profit improvements and are therefore reducing the average magnitude of the impact. Liquidity became a significant challenge for MNE affiliates in Q2 2021. Nearly two thirds of surveyed firms Other factors could be driving revenue and profits to (64 percent) report adverse liquidity impact in Q2, an remain below pre-pandemic levels. While employment is increase of 16 percentage points from Q1 (48 percent). recovering in response to rising demand, rising input The share of MNE affiliates reporting adverse impacts costs, higher inventory holdings, and deferred investment on liquidity had been relatively stable across prior rounds into production could be moderating any real effect on of the survey, so Q2 results highlight a potentially revenues and profits. significant challenge as expansionary policies and relief programs begin to expire or scale down. Additionally, Regional differences companies may have diminished their cash and asset In every region, the majority of surveyed companies reserves since the onset of the pandemic. Respondents report at least one adverse impact of COVID-19 from the may have also been influenced by a rise in the value of ten business dimensions measured (Figure 4). Surveyed the US Dollar during the survey period.8 The results MNE affiliates in South Asia, East Asia, and Middle East show that this challenge affects all surveyed firms, and North Africa were more likely to report adverse regardless of their sector, size or business model, and effects across business dimensions. A sizable share of correlates with lower investments levels. Among the 64 survey respondents in Europe and Central Asia, Sub- percent of respondents reporting lower liquidity, the Saharan Africa and Latin America and the Caribbean are average investment level remains 3 percent lower than still adversely affected in terms of revenue and net income pre-pandemic levels. MNE affiliates that are not and report high input costs. Surprisingly, in these regions experiencing liquidity constraints, report investment a smaller share of firms report adverse effects on levels 3 percent higher relative to pre-pandemic levels. investment, demand, and output. Future survey rounds will investigate the divergence across regions. 7 Throughout the report, firms with more than 250 employees are categorized as large. 8 From its lowest value in March 2021 to its peak in May 2021, the exchange rate of the USD against the EUR increased by 5 percent. 9 See Appendix B for additional information on the distribution of responses (histograms for impact categories). 6 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Figure 4: Share of MNE affiliates reporting adverse effects from the COVID-19 pandemic in Q2 2021 by sector, region, business model and size (n=300) Sector Region Business model Company size Latin Middle East East Asia Sub-Saharan Europe and America and Export- Business- Total Manufacturing Services South Asia and North <250 emp. >=250emp. and Pacific Africa Central Asia the oriented oriented Africa Caribbean Supply chain 32% 37% 26% 76% 50% 62% 2% 0% 0% 45% 27% 32% 31% reliability Input costs 47% 73% 21% 40% 48% 32% 56% 54% 52% 26% 41% 29% 62% Liquidity 64% 73% 56% 66% 66% 78% 54% 68% 54% 60% 66% 62% 66% Worker 29% 32% 26% 66% 50% 50% 6% 0% 2% 40% 26% 32% 27% productivity Investment 29% 33% 26% 68% 50% 56% 2% 0% 0% 37% 27% 30% 29% Demand 34% 39% 29% 68% 52% 58% 2% 10% 14% 40% 32% 36% 32% Output 38% 45% 31% 68% 52% 62% 6% 18% 20% 44% 36% 40% 36% Employment 31% 34% 29% 68% 54% 56% 4% 4% 2% 42% 28% 32% 31% Revenues 62% 71% 54% 70% 64% 70% 50% 62% 58% 63% 62% 63% 62% Net income 62% 69% 55% 70% 62% 72% 50% 62% 58% 64% 62% 63% 62% Any business dimension 76% 84% 69% 89% 83% 86% 62% 72% 64% 81% 75% 79% 65% (excl. input costs) Any business 78% 85% 71% 93% 87% 88% 62% 74% 64% 84% 77% 80% 72% dimension Note: Darker shading reflects higher intensity. For example, 37 percent of manufacturing firms surveyed experienced adverse supply chain reliability in the second quarter of 2021, relative to pre- pandemic levels. 7 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Changes to Investment Plans MNEs’ future investment plans have become slightly more optimistic, providing early signs of an improvement in the Figure 5: Expected changes in investment in the investment outlook – although the specter of uncertainty host country (Q3 2020 n=305; Q4 2020 n=329; Q1 remains. The investment prospects of surveyed MNEs are 2021 n=300; Q2 2021 n=300) improving amid a strong global economic recovery that is Are you aware of any plans by your company's driven mainly by the rebound in demand in advanced foreign parent to change the amount that it invests in your host country in the next 1-3 years? economies. Survey data suggest that over the past four quarters (Q3 2020 through Q2 2021) MNEs’ investment plans have stabilized. The share of MNEs expecting to Q3 2020 2% 39% 46% 13% increase investment over the next three years has reached Q4 2020 7% 75% 17% a pandemic high. However, uncertainty about future economic conditions remains the key factor holding back Q1 2021 92% 8% further investment. Governments, however, have the opportunity to foster further investment through increased Q2 2021 6% 72% 21% support by investment promotion agencies (IPAs), as well as policy and regulatory reforms that relax investment Don't know Plans to invest less constraints and protect investors. No change is expected Plans to invest more Changes to investment plans Figure 6: Level of certainty about parent company’s Overall, 72 percent of respondents expected no change in investment plans for host country (n=300) their parent companies’ level of investment in the host How certain are you about your parent company's country over the next 1-3 years. This is down from 92 investment plans for your host country? percent in Q1 and the trend is consistent across regions, 2% business models, firm size, and sectors (Figure 5).10 More 6% 22% Very certain importantly, the share of surveyed MNEs expecting to Somewhat certain increase their investment in the next 1-3 years has increased to 21 percent from 8 percent in Q1. This represents a Somewhat uncertain stabilization in investment outlook as firms begin 69% Very uncertain implementing investment plans deferred because of the pandemic. The share of surveyed firms planning to affiliates in the region may be willing to catch up to their decrease investment (6 percent) increased slightly from Q1. previous investment levels as economies recover. At the same time, the data suggest that only a small share Secondly, surveyed MNE affiliates in South Asia of survey respondents are ‘very certain’ about their parent experienced the largest employment reductions at the company’s investment plans. onset of the pandemic (9 percent on average) and therefore Regional differences in investment outlook have also have the most ambitious recruitment plans over the next 1 become apparent, with 40 percent of surveyed MNE to 3 years (14 percent on average). The observed increases affiliates in South Asia expecting increases in their parent in investment are a sign of recovery in the region and an companies’ investment plans. In other regions, only important development for a global recovery. between 10 and 22 percent of surveyed MNEs expected Consistent with prior survey rounds, only 22 percent of investment to increase. There are two primary drivers that respondents were “very certain� about their company’s contribute to this trend. First, when compared to pre- investment plans (Figure 6). Uncertainty, even more so pandemic levels, South Asia lags all other regions in terms than the previous quarter, is reported as the primary reason of current investment level. This creates a situation where for firms leaving investment plans unchanged. Among 10 Throughout the report, business model refers to export oriented or business oriented (domestic market oriented). 8 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 surveyed firms that are not planning to change investment Figure 7: Main drivers for no change in investment in the next 1-3 years, 86 percent of respondents cite plans (Q1 2021 n=275; Q2 2021 n=217) uncertainty as the key factor in their decision not to expand investment (Figure 7). Expectations of limited demand Why is the amount of investment expected to stay the growth (82 percent), as well as sufficient capacity to meet same? demand (74 percent), are also among the main reasons for Uncertain about future demand 74% unchanged investment plans. A significant share of MNEs (new investments are on hold) 86% have not yet reached pre-pandemic output levels (38 Expect limited or no growth in 48% percent) and due to the high uncertainty in demand demand 82% recovery, it is plausible that boardrooms will draw up new Company has sufficient capacity to 52% investment plans only after their affiliates attain pre-crisis meet demand 74% productivity and capacity. Future expansions likely to be 14% realized through outsourcing 10% Among MNE affiliates that expect to increase their Policy and regulatory restrictions on 48% investment (n=60), the primary drivers are changes or investment are prohibitive 9% expected changes in policies and regulations for foreign Costs are prohibitive in host country 7% 8% investors (73 percent) and insourcing of production (63 Future investments will mainly be 9% percent). This highlights the importance of the regulatory nearshoring or reshoring 7% environment in attracting FDI during a period of recovery. To remain competitive in the global FDI Q1 2021 Q2 2021 market, policymakers should thus remain committed to fair market access for foreign firms, remove critical from 52 percent in Q1 to 32 percent in Q2 (Error! administrative barriers to investment, and improve the Reference source not found.). implementation and quality of investment laws. Survey data indicate what investors care about in terms of Policies to encourage investment policy support. For example, Q2 data suggest that support from IPAs is now the most commonly sought-after policy In Q1, 48 percent of survey respondents cited policy and support. More than 40 percent of respondents cite it as regulatory restrictions on investment as the primary one of their top-three desired areas of support toward reason for leaving investment plans unchanged, but this additional investment. Tax relief, including tax cuts, tax has dropped to just 9 percent in Q2. This may illustrate credits, and deferred payments, is also important among that the pro-investment and expansionary policies of the respondents and is considerably more desirable than the past year have been effective, and restrictiveness is no previous quarter (30 percent in Q2 as compared to 15 longer a major concern of MNEs. Governments play a percent in Q1). Other key policies to foster investment central role in the investment decisions of MNEs and include improving the legal environment (32 percent) and should maintain current expansionary policies (including easier approvals for foreign-owned businesses (32 business-supportive policies) until there is a complete percent). Overall, the pandemic’s adverse effects on recovery. MNEs and global production require policymakers to The policies that help businesses foster additional boost their countries’ investment competitiveness. investment seem to be shifting from removing barriers to Moving forward, governments should restore investor investment towards incentives and support from IPAs, at confidence by maintaining a stable and predictable least in the eyes of investors. The share of respondents investment policy environment and resisting protectionist citing relaxation of investment constraints/ restrictions in policies. their top three policies to drive additional investment fell 9 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Figure 8: Policy initiatives mentioned by respondents as encouraging investment in their host country in Q1 and Q2 2021 (n=300) What investment policy initiatives would be the most effective to support additional investment by your company in your host country? (Share of firms including ranking each item in their top three priorities) Increased support from investment promotion agencies (IPA) 28% 41% Relaxation of investment constraints and restrictions 52% 32% Improved legal environment and investor protections 23% 32% Easier approvals to start and operate a foreign-owned business 39% 32% Reduced restrictions on prices, technology, or format of products 47% 30% Tax relief (tax cuts, tax credits, deferred payments) 15% 30% Financial incentives (cash grants or government equity, loans) 19% 23% Reduction of trade barriers 29% 22% Reduced local content or local staff requirements 32% 20% Easier hiring and bringing in expatriate staff 15% 13% 0% 20% 40% 60% Q1 2021 Q2 2021 10 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS : Q2 2021 Employment and Skills Employment generation and upskilling of the workforce rounds that the impact of the crisis has been more by MNE affiliates in developing countries play a critical adverse – both in incidence and in magnitude -- among role in their contribution to economic development. Since manufacturing MNE affiliates. the onset of the pandemic, half of surveyed MNE respondents had to lay off employees, presenting a Surveyed MNE affiliates that retained their workforce significant challenge for host economies. However, data during the crisis (43 percent) are now performing better from Q2 2021 indicate that most MNE affiliates expect compared to others. Overall, their workers were 5.4 their workforce to grow over the next three years – percent more productive than before the pandemic, signaling a notable recovery. As MNE affiliates grow their compared with 0.3 percent below for those that laid off workforce back to pre-pandemic levels, they seek more workers (Figure 9). The decision to retain workers may qualified workers who can thrive in new, technology driven not always be strategic: on average, firms that laid off work environments. workers experienced demand 6 percent lower than pre- pandemic levels, while those that retained workers report Changes in the workforce levels demand above pre-pandemic levels (3 percent higher). It is also possible that firms with higher management quality Over the course of the pandemic, lockdowns, demand were able to weather the turbulence better and raise shocks, and operational disruptions forced a significant productivity. These results are mainly driven by financial, share (57 percent) of surveyed MNE affiliates to reduce information, and professional services firms who have their workforce. Q2 survey results indicate the average largely seen a robust recovery after a short-lived workforce reduction was about 5 percent but contraction during the pandemic.11 heterogenous across firms, sectors, regions, and company size. Manufacturing MNE affiliates were particularly hard Interestingly, the companies with the most ambitious hit with 77 percent indicating they laid off employees, as recruitment plans over the next three years are those that compared with 37 percent of services MNE affiliates. reduced the size of their workforce during the pandemic. This is consistent with findings from previous survey While this suggests an improving outlook for recovery, Figure 9: Average changes in output and worker Figure 10: Share of workforce laid off during the productivity pandemic and expected increase in workforce over From April to June 2021, what was your the next 1-3 years (n=300) company’s performance in your host country compared to the same period in 2019? Latin America and the 3.3% Caribbean 2.3% Change in output Change in productivity Europe and Central Asia 2.8% 5.40% 2.7% 3.80% Sub-Saharan Africa 2.8% 2.4% Middle East and North Africa 6.4% 5.1% South Asia 13.6% 8.6% -0.30% East Asia and Pacific 12.2% 7.1% -1.80% Expected increase in workforce in the next 3 years Companies that did not let go of workers during the Share of workforce let go due to COVID-19 pandemic (n=129) Note: Due to base effects, current level of workforce cannot be determined Companies that let go workers during the pandemic (n=171) by a simple calculation of the workforce previously let go and the expected increase in the workforce over the next 1-3 years. 11Of the 129 firms that retained their workforce, 73 percent were services firms, with finance and insurance (19 percent), professional, scientific and technical services (19 percent), and information and communication services (17 percent) making up the largest subsectors. 11 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 the prospects are not uniform across sectors. The average workforce expansion. There is little survey evidence that reduction was greater for surveyed manufacturing MNE relocation of production from other host economies will affiliates and they have more modest recruitment plans drive workforce growth among MNE affiliates. over the next three years. There are regional differences in MNE affiliates’ hiring Overall, surveyed MNE affiliates anticipate significant expectations. All respondents in SSA, ECA, and LAC recruitment plans over the next 1-3 years, with an indicated that they will use local talent for hiring needs. In expected 7 percent expansion of the workforce. EAP and MENA however, local hiring is less prevalant Compared to the share of workers laid off (5 percent) (52 and 72 percent respectively). Firms in these regions surveyed MNE affiliates project an employment growth plan on utilizing a combination of strategies, including over the next three years of 2 percent above pre- continuing education for employees (developing skills), pandemic levels. outsourcing tasks, and relocating tasks to other counties. This indicates that the skills in demand by MNEs may not MNE affiliates surveyed in SAR and EAP experienced be readily available in these regions (EAP and MENA). the largest declines in employment levels during the Host country governments should turn their attention to pandemic (9 percent and 7 percent respectively), but skills development, both as a strategy to retain and survey data on recruitment plans signal an above average increase employment within MNE affiliates, and as source workforce expansion (12 percent increase, compared to 3 of investment competitiveness. percent in ECA, LAC, and SSA) (Figure 10). If these plans materialize, the resulting workforce in MNE Changes in workforce profile affiliates located in SAR and EAP is expected to be 4 percent above pre-pandemic levels. The workforce in Surveyed MNE affiliates are now looking for individuals other regions (MENA, SSA, ECA and LAC) is expected with higher levels of education in order to utilize new to expand only by 0 to 1 percent above pre-pandemic technologies and adapt to an evolving business levels. environment. Respondents indicate they will be increasingly looking for workers with tertiary eduation to The primary driver for MNE affiliates planning to expand meet their employment needs. A majority (72 percent) of their workforce in the next 1-3 years is the demand for MNE affiliates expect the share of workers with tertiary skills that will be required for future operations (77 education to increase over the next 1-3 years, compared percent) (Figure 11). Recovery in demand (66 percent) to only 3 percent for primary education or below (Figure and decreasing relative labor costs (60 percent) are other 12). important factors contributing to their expected Figure 12: Expected changes in workforce profile (n=300) Figure 11: Main reasons for expectations of increases in workforce in 1-3 years (n=202) How do you expect the following profiles of your workforce in your host country You indicated that you expect your to change over the next 1-3 years? company’s workforce to increase in your host (Share of respondents planning on increasing the country. Can you expand on the reasons why following) you have this expectation? Specific skills required for future operations are 77% available in host country 21% 72% Overall operating scale will increase due to higher 66% demand Share of workforce with primary education or below (i.e. kindergarten, grade school) Labor costs are decreasing relative to other countries in 60% Share of workforce with secondary education (i.e. middle host country school, high school) Company is relocating production from other 15% Share of workforce with tertiary (i.e., university) education countries to host country 12 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Surveyed MNE affiliates in SAR, EAP, and MENA Survey data also reflect a shift in MNE affiliates’ skills expect significant shifts in the educational composition of demand in host economies. Seventy one percent of their workforce over the next three years. The share of respondents report task management and problem- workers with secondary and tertiary education is likely to solving skills among the top three skills required of their expand (between 32 and 56 percent of firms in the three workforce in the next 1 to 3 years (Figure 13). Indicating regions report this expectation). Simultaneously, the share a shift away from task based roles, service and social skills of workers with primary education is likely to shrink are the second most sought after skill, cited by 45 percent (between 24 and 32 percent of surveyed firms in the three of respondents. This trend is observed across all sectors, regions report this expectation). These are the largest company sizes, and business models. regional changes in the education profile of the workforce and signals a shift in workforce composition of MNE affiliates. Figure 13: Main skills expected to be increasingly required among workforce in host country (n=300) From a skills perspective, what skills will be increasingly required among the workforce in your country of operation over the next 1-3 years? Managerial, analytical, and problem-solving skills (including project 39% 20% 12% management) Service and social skills 13% 21% 11% Ability to operate production machinery and equipment 11% 14% 12% Process and hardware engineering 13% 15% 9% Language skills (e.g., English German) 18% 9% 7% Digital and ICT skills (e.g. programming) 7% 12% 12% Other 6% 1st Rank 2nd Rank 3rd Rank Note: Shares are based on frequency counts of ranked response options. 13 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Appendix A: About the Survey The data for this study comes from the Q2 2021 Pulse survey conducted between July 19 and August 13, 2021.The Pulse survey’s goal is to monitor MNE performance along several supply and demand dimensions, gain information on business strategy adjustments, and assess policy responses. This survey round included new questions on MNE employment and skills requirements. Survey Coverage The survey involved interviewing senior executives in affiliate operations of MNEs in the following six regions: East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, the Middle East and North Africa, South Asia, and Sub-Saharan Africa. The 300 MNEs that responded to the survey represented the six regions (50 respondents from each region) and the manufacturing and service sectors (150 respondents from each sector). Survey Content Questions were organized into the following sections: 1. General information on the company and interviewee, including host and source country, position, number of employees, total asset, sector, and sub-sector. 2. The effect of COVID-19 in the second quarter of 2021, including the company’s performance on various dimensions compared to the same period in 2020 and adverse impacts on aspects of the supply chain. 3. Investment plans and policy initiatives, including the parent company’s investment plans, changes in the supply chain in terms of input sourcing, and policy initiatives that could encourage investment. 4. The changes in employment and skills required by MNEs, including the share of workforce that was let go, plans of recruitment, skills expected to be increasingly required, and strategies to fill skills needs. Survey Administration The World Bank Group commissioned EY Advisory (EY) and Euromoney PLC (Euromoney, as EY’s subcontractor) to conduct the third Pulse survey. The survey was conducted online, in English. Each online survey was approximately 20 minutes long. Respondents participated in and completed the survey anonymously to protect their privacy and encourage participation and candid responses. The survey data was delinked from individual responses. The survey was launched on July 19, 2021 and the fieldwork was completed on August 13, 2021. Data Collection and Data Summary The survey data set contains 300 responses from MNE affiliates operating in 36 developing countries. Of the sample of 300 responses, 150 responses are from manufacturing and 150 are from services. Overall, the response rate for the survey was 17 percent (300 responses obtained from 1759 attempts). The response rate for manufacturing was 16 percent and for services was 18 percent. Within services, the highest sub-sectoral response rates were in finance and insurance (34 percent), information and communication services (23 percent), and professional services (23 percent). As a result, the services sample comprises a higher share of firms from these subsectors. Within manufacturing, the highest response rates were in coke and refined petroleum (67 percent), paper and paper products (57 percent), and 14 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 food products (28 percent) subsectors. Firms from these subsectors comprise a higher share of the manufacturing sample. The figures below present the distributions of respondents by region and country of operation ( Figure 14), foreign parent company location (Figure 15), business size by number of employees (Figure 16Error! Reference source not found.Error! Reference source not found.) and total assets (Figure 17Error! Reference source not found.), the respondent’s position (Figure 18Error! Reference source not found.) and the business sector/subsector (Figure 19), response rate by subsector (Figure 20). 15 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 14: Sample distribution by region and country of operation Region/Host Country Q4 2020 Q1 2021 Q2 2021 Count Percent Count Percent Count Percent East Asia & Pacific 52 16% 50 17% 50 17% Cambodia 3 1% 2 1% 2 1% China 21 6% 20 7% 20 7% Indonesia 6 2% 6 2% 6 2% Malaysia 8 2% 8 3% 8 3% Philippines 6 2% 6 2% 6 2% Thailand 2 1% 2 1% 2 1% Vietnam 6 2% 6 2% 6 2% Europe & Central Asia 55 17% 50 17% 50 17% Bulgaria 9 3% 8 3% 8 3% Georgia 10 3% 8 3% 8 3% Russia 16 5% 16 5% 16 5% Turkey 12 4% 10 3% 10 3% Ukraine 8 2% 8 3% 8 3% Latin America & the Caribbean 57 17% 50 17% 50 17% Argentina 8 2% 8 3% 8 3% Brazil 19 6% 14 5% 14 5% Cuba 4 1% 4 1% 4 1% Ecuador 4 1% 4 1% 4 1% Jamaica 2 1% 2 1% 2 1% Mexico 15 5% 14 5% 14 5% Peru 5 1% 4 1% 4 1% Middle East & North Africa 52 16% 50 17% 50 17% Algeria 5 1% 4 1% 4 1% Egypt 12 4% 12 4% 12 4% Iran 10 3% 10 3% 10 3% Jordan 10 3% 10 3% 10 3% Lebanon 7 2% 6 2% 6 2% Morocco 8 3% 8 3% 8 3% South Asia 56 17% 50 16% 50 16% Bangladesh 19 6% 16 5% 16 5% India 21 7% 20 7% 20 7% Maldives 4 1% 4 1% 4 1% Pakistan 4 1% 4 1% 4 1% Sri Lanka 8 2% 6 2% 6 2% Sub-Saharan Africa 56 17% 50 16% 50 16% Cameroon 1 0% - - - - Cote d’Ivoire 1 0% 4 1% 4 1% Kenya 4 1% 6 2% 6 2% Namibia 6 2% 6 2% 6 2% Nigeria 11 3% 10 3% 10 3% South Africa 18 6% 14 5% 14 5% Tanzania 11 3% 10 3% 10 3% Total 329 100% 300 100% 300 100% Note: The survey followed a similar research design for the three rounds presented above. For prior rounds, the sample size was much lower, hence survey rounds prior to those presented above are not included. 16 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 15: Sample distribution by location of foreign parent company Q4 2020 Q1 2021 Q2 2021 Region/Source Country Count Percent Count Percent Count Percent East Asia & Pacific 41 12% 56 13% 30 10% Australia 4 1% 8 3% 3 1% China 6 2% 10 3% 6 2% Hong Kong SAR, China 3 1% 2 1% - - Indonesia 1 0% - - - - Japan 8 2% 3 1% 6 2% Korea, Rep 4 1% 3 1% 2 1% Malaysia - - 1 0% 4 1% Philippines - - - - 1 0% Singapore 10 3% 9 3% 6 2% Taiwan, China 5 2% 3 1% 2 1% Europe & Central Asia 121 37% 119 40% 138 46% Austria 2 1% 3 1% 3 1% Belgium 2 1% 5 2% 3 1% Croatia - - 1 0% - - Denmark 7 2% 8 3% 4 1% Estonia - - - - 1 0% Finland 2 1% - - 2 1% France 17 5% 20 7% 31 10% Germany 23 7% 20 7% 23 8% Greece 1 0% - - - - Ireland 4 1% 6 2% 3 1% Italy 5 2% 6 2% 3 1% Luxembourg 3 1% - - 1 0% Netherlands 6 2% 7 2% 8 3% Norway 1 0% 2 1% 2 1% Poland - - 2 1% - - Spain 2 1% 3 1% 3 1% Sweden 6 2% 5 2% 5 2% Switzerland 16 5% 11 4% 8 3% Turkey - - 1 0% - - United Kingdom 24 7% 19 6% 38 12% Latin America & the Caribbean 3 1% - - 1 0% Chile 1 0% - - 1 0% Colombia 1 0% - - - - Uruguay 1 0% - - - - Middle East & North Africa 10 3% 12 4% 10 3% Israel 1 0% 1 0% - - Jordan 1 0% 1 0% - - Kuwait 1 0% - - 1 0% Lebanon - - - - 4 1% Qatar 1 0% 2 1% - - Saudi Arabia 1 0% 1 0% - - Syrian Arab Republic - - 1 0% - - Tunisia 1 0% - - - - United Arab Emirates 1 0% 6 2% 5 2% North America 115 35% 98 33% 104 35% Bermuda 3 1% - - - - Canada 3 1% 2 1% 3 1% United States 109 33% 96 32% 101 34% South Asia 26 8% 18 6% 12 4% Bangladesh 1 0% 1 0% 1 0% India 23 7% 15 5% 11 4% Pakistan 2 1% 2 1% - - 17 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Q4 2020 Q1 2021 Q2 2021 Region/Source Country Count Percent Count Percent Count Percent Sub-Saharan Africa 13% 4% 12 4% 5 2% Botswana - - 1 0% - - Ghana - - 1 0% - - Kenya 4 1% 2 1% 1 0% Mauritius 2 1% 1 0% - - Namibia - - - - 2 1% Nigeria 2 1% 2 1% 2 1% South Africa 3 1% 1 0% - - Tanzania 1 0% - - - - Uganda - - 1 0% - - Zambia 1 0% 1 0% - - Total 329 100% 300 100% 300 100% Note: The survey followed a similar research design for the three rounds presented above. 18 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 16: Sample distribution by size (number Figure 18: Sample distribution by respondent’s of employees) position Size Count Percent Respondent’s position Count Percent Smaller (<250 employees) 136 55% Country General Manager 97 32% Larger (>=250 employees) 164 45% Country Finance Head 54 19% Total 300 100% Country Strategy Head 21 7% Country Sales Manager 64 21% Figure 17: Sample distribution by assets in host Country Operations country Manager 64 21% Assets Count Percent Total 300 100% Less than 2 million 51 18% USD 2-5 million 85 28% USD 5-10 million 49 16% USD 10-50 million 68 23% >USD 50 million 43 14% Do not know 4 1% Total 300 100% 19 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 19: Sample distribution by business sector and subsector (ISIC 4.0) Q4 2020 Q1 2021 Q2 2021 Business sector/subsector Count Percent Count Percent Count Percent Manufacturing 160 49% 150 50% 150 50% Basic metals 2 1% 5 2% 2 1% Beverages 7 2% 7 2% 10 3% Chemicals and chemical products 14 4% 16 5% 10 3% Coke and refined petroleum - - 2 1% 4 1% Computer, electronic and optical products 11 3% 15 5% 11 4% Electrical equipment 14 4% 20 7% 20 7% Fabricated metal products, except machinery and 2 1% 1 0% 1 0% equipment Food products 13 4% 11 4% 14 5% Machinery and equipment not elsewhere classified 27 8% 19 6% 8 3% Motor vehicles, trailers, and semi-trailers 22 7% 8 3% 17 6% Non-metallic mineral products 2 1% - - 1 0% Other manufacturing 13 4% 17 6% 19 6% Other transport equipment 1 0% 2 1% 3 1% Paper and paper products 1 0% 2 1% 4 1% Pharmaceuticals 18 5% 11 4% 14 5% Recorded media - - 1 0% - - Rubber and plastics products 1 0% 5 2% 3 1% Tobacco 4 1% 1 0% 4 1% Textiles and wearing apparel 8 2% 6 2% 2 1% Wood products - - 1 0% - - Services 169 51% 150 50% 150 50% Accommodation and food services 5 2% 5 2% 5 2% Administrative and support services 12 4% 6 2% 4 1% Education - - 1 0% 1 0% Electricity and gas supply 6 2% 7 2% 5 2% Financial services (including insurance) 28 9% 19 6% 32 11% Health and social services 14 4% 17 6% 6 2% Information and communication 34 10% 38 13% 31 10% Other services 2 1% 4 1% 2 1% Professional, scientific and technical activities 27 8% 17 6% 33 11% Real estate - - 1 0% 1 0% Transportation and storage 27 8% 26 9% 15 5% Water and waste services 2 1% 1 0% 1 0% Wholesale and retail trade 12 4% 8 3% 14 5% Total 329 100% 300 100% 300 100% 20 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 20: Response rate by sub-sector Targeted Achieved Business sector/sub-sector Count Percentage Count Percentage Response Rate Manufacturing 945 54% 150 50% 16% Basic metals 18 2% 2 1% 11% Beverages 54 6% 10 7% 19% Chemicals 91 10% 10 7% 11% Coke and refined petroleum 6 1% 4 3% 67% Computer, electronic, and optical products 64 7% 11 7% 17% Electrical equipment 113 12% 20 13% 18% Fabricated metal products 14 1% 1 1% 7% Food products 50 5% 14 9% 28% Furniture 3 0% 0 0% 0% Leather and related products 4 0% 0 0% 0% Machinery and equipment 97 10% 8 5% 8% Motor vehicles and trailers 106 11% 17 11% 16% Non-metallic minerals products 9 1% 1 1% 11% Other manufacturing 86 9% 19 13% 22% Other transport equipment 30 3% 3 2% 10% Paper and paper products 7 1% 4 3% 57% Pharmaceuticals 86 9% 14 9% 16% Recorded media 3 0% 0 0% 0% Rubber and plastics 29 3% 3 2% 10% Textiles 11 1% 2 1% 18% Tobacco 32 3% 4 3% 13% Wearing apparel 24 3% 3 2% 13% Wood products 8 1% 0 0% 0% Services 846 46% 150 50% 18% Accommodation and food service 32 4% 5 3% 16% Administrative and support services 43 5% 4 3% 9% Arts and recreation 11 1% 0 0% 0% Education 13 2% 1 1% 8% Electricity and gas supply 41 5% 5 3% 12% Finance and insurance 93 11% 32 21% 34% Health and social services 42 5% 6 4% 14% Information and communication services 134 16% 31 21% 23% Other services 59 7% 2 1% 3% Professional, scientific and technical services 142 17% 33 22% 23% Real estate 21 2% 1 1% 5% Transportation and storage 108 13% 15 10% 14% Water and waste services 15 2% 1 1% 7% Wholesale and retail trade 92 11% 14 9% 15% Total 1759 100% 300 100% 17% 21 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Appendix B: Additional Figures Figure 21: Sample distribution (n=300) From April to June 2021, what was your company’s performance in your country of operation, compared to the same period in 2019? Supply chain reliability Input costs 200 200 100 100 0 0 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Liquidity Worker productivity 200 200 100 100 0 0 -40 -30 -20 -10 0 10 20 30 40 50 60 70 -35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 50 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Investment Demand 200 200 100 100 0 0 -40-35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 -75 -65 -55 -45 -35 -25 -15 -5 5 15 25 35 45 55 65 75 85 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Output Employment 200 200 100 100 0 0 -40-35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 -40-35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 50 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Revenues Net income 200 200 100 100 0 0 -50 -40 -30 -20 -10 0 10 20 30 40 50 -40-35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 50 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Note: Above histograms were computed based on frequency. Respondents were asked to indicate how the above ten dimensions changed compared to pre-pandemic levels, -100% to +100%, in increments of 5% to the closest decimal point. For instance, a respondent with a +9.9% change was asked to select the 10% increment, while one with a +5.1% change was asked to select the 5% increment. 22 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 22: Sample distribution among manufacturing firms (n=150) From April to June 2021, what was your company’s performance in your country of operation, compared to the same period in 2019? Supply chain reliability Input costs 100 100 50 50 0 0 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 -15 -10 -5 0 5 10 15 20 25 30 35 40 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Liquidity Worker productivity 100 100 50 50 0 0 -35-30-25-20-15-10 -5 0 5 10 15 20 25 30 35 40 45 50 -20 -15 -10 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 -5 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Investment Demand 100 100 50 50 0 0 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80 90 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Output Employment 100 100 50 50 0 0 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 -15 -10 -5 0 5 10 15 20 25 30 35 40 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Revenues Net income 100 100 50 50 0 0 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Note: Above histograms were computed based on frequency. Respondents were asked to indicate how the above ten dimensions changed compared to pre-pandemic levels, -100% to +100%, in increments of 5% to the closest decimal point. For instance, a respondent with a +9.9% change was asked to select the 10% increment, while one with a +5.1% change was asked to select the 5% increment. 23 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Figure 23: Sample distribution among services firms (n=150) From April to June 2021, what was your company’s performance in your country of operation, compared to the same period in 2019? Supply chain reliability Input costs 100 100 Share of sample Share of sample 50 50 0 0 -25 -20 -15 -10 -5 0 5 10 15 20 25 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Liquidity Worker productivity 100 100 Share of sample Share of sample 50 50 0 0 -35 -30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 -40 -35 -30 -25 -20 -15 -10 0 5 10 15 20 25 30 35 40 45 50 -5 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Investment Demand 100 100 Share of sample Share of sample 50 50 0 0 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45 -75 -65 -55 -45 -35 -25 -15 -5 5 15 25 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Output Employment 100 100 Share of sample Share of sample 50 50 0 0 -40 -35 -30 -25 -20 -15 -10 10 15 20 0 5 25 30 35 40 45 50 -5 -40 -35 -30 -25 -20 -15 -10 0 5 45 10 15 20 25 30 35 40 -5 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Revenues Net income 100 100 Share of sample Share of sample 50 50 0 0 -50 -40 -30 -20 -10 0 10 20 30 40 50 -40 -35 -30 -25 -20 -15 -10 0 5 10 15 20 25 30 35 40 45 50 -5 Reported impact compared to pre-pandemic (in %) Reported impact compared to pre-pandemic (in %) Note: Above histograms were computed based on frequency. Respondents were asked to indicate how the above ten dimensions changed compared to pre-pandemic levels, -100% to +100%, in increments of 5% to the closest decimal point. For instance, a respondent with a +9.9% change was asked to select the 10% increment, while one with a +5.1% change was asked to select the 5% increment. 24 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Table of Figures Figure 1: Average impact of the COVID-19 pandemic on MNE affiliates over 2020-21 .......................................3 Figure 2: Share of MNE affiliates reporting adverse impacts during Q1 and Q2 2021, and average impact during Q2 2021 (n=300) .....................................................................................................................................................4 Figure 3: Share of MNE affiliates reporting specific supply chain effects during Q2 2021 (n=60) .......................5 Figure 4: Share of MNE affiliates reporting adverse effects from the COVID-19 pandemic in Q2 2021 by sector, region, business model and size (n=300).............................................................................................................7 Figure 5: Expected changes in investment in the host country (Q3 2020 n=305; Q4 2020 n=329; Q1 2021 n=300; Q2 2021 n=300) .....................................................................................................................................................8 Figure 6: Level of certainty about parent company’s investment plans for host country (n=300).........................8 Figure 7: Main drivers for no change in investment plans (Q1 2021 n=275; Q2 2021 n=217)..............................9 Figure 8: Policy initiatives mentioned by respondents as encouraging investment in their host country in Q1 and Q2 2021 (n=300) ....................................................................................................................................................... 10 Figure 9: Average changes in output and worker productivity .................................................................................. 11 Figure 10: Share of workforce laid off during the pandemic and expected increase in workforce over the next 1-3 years (n=300)............................................................................................................................................................... 11 Figure 11: Main reasons for expectations of increases in workforce in 1-3 years (n=202) ................................... 12 Figure 12: Expected changes in workforce profile (n=300)....................................................................................... 12 Figure 13: Main skills expected to be increasingly required among workforce in host country (n=300) ........... 13 Figure 14: Sample distribution by region and country of operation ......................................................................... 16 Figure 15: Sample distribution by location of foreign parent company ................................................................... 17 Figure 16: Sample distribution by size (number of employees) ................................................................................. 19 Figure 17: Sample distribution by assets in host country............................................................................................ 19 Figure 18: Sample distribution by respondent’s position............................................................................................ 19 Figure 19: Sample distribution by business sector and subsector (ISIC 4.0) ........................................................... 20 Figure 20: Response rate by sub-sector ......................................................................................................................... 21 Figure 21: Sample distribution (n=300) ......................................................................................................................... 22 Figure 22: Sample distribution among manufacturing firms (n=150) ...................................................................... 22 Figure 23: Sample distribution among services firms (n=150) .................................................................................. 22 25 THE IMPACT OF COVID-19 ON FOREIGN INVESTORS: Q2 2021 Acknowledgments The sixth round of the survey (Q2 2021) was conducted by EY Advisory (EY) and Euromoney PLC (Euromoney) on behalf of the World Bank Group. The authors thank Vincent Raufast, Yannick Cabrol, Clémence Marcout, Clodagh Nash, Lawrence Bowden, Duncan Kerr for their contributions to the report. The authors would also like to thank Alvaro Gonzalez, Asya Akhlaque, Denis Medvedev, Mary Hallward- Driemeier, and Michael Ferrantino for their suggestions and guidance. 26