It is a widely accepted view that without improvements in productivity population ageing is likely to have a negative impact on economic growth and returns to investment. The idea that we might rely on cross-country immigration as an alternative means of countering some of the economic consequences of population ageing seems even more remote now from realistic politics than it was a few year ago. Support for policies aimed at encouraging and liberalising immigration will surely be affected by the COVID pandemic - and it is hard to say how lasting this effect will be. In the current socio-political global scenario, immigration has become an openly controversial topic. The case for state encouragement of investment in productivity improvements has become stronger as a result.
Foreign Direct Investment (FDI) has been long recognised as an engine of growth and development; and although economic theory would suggest that population ageing has a negative impact on net inflows of FDI, there is now some evidence to the contrary from an analysis of OECD panel data. Over the long term, it seems that population ageing has a significantly positive impact to inward FDI. While the pandemic is still causing disruptions and damages to societies worldwide, many countries want to attract FDI to support the public finance and enhance the post COVID 19 recovery. In 2020, global FDI collapsed at a rate of 42% with developed countries facing an even up to 69% dip. Consequently, the competition for FDI among governments has become highly intensified (e.g. UK’s new Office of Investment directly under the aegis of the British Prime Minister). Countries would like to use this unique window of opportunity to re-examine the priority of development sectors. Countries can improve equality and channel inward FDI according to their unique context, needs and attractiveness. The shift can have a long-term impact on national, regional and global investment policy making.
Social impact and developmental policies benefiting the population of any country usually lies at the core of federal financial planning. This blog will review investment areas that have been identified as priorities for FDI post-COVID, and their relevance for population ageing, as well as the latest trends with inward FDI in developed countries (e.g. UK, Japan and Germany).
Firstly, healthy living is an attractive investment theme because ageing populations will have a greater demand for affordable and accessible healthcare and nursing services. During the pandemic, only the healthcare and technology sectors have emerged as “Krisengewinner” (crisis winners), especially for investment opportunities. On the other hand, the pandemic has also caused many governments to protect the domestic companies in the sectors of pharmaceutical and medical devices as they are strategic to national interest. For example, both Japan and Germany have recently introduced or re-enforced investment screening measures.
Secondly, digital investment is regarded by many commentators as an important tool in helping with economic recover post-COVID-19. Even before the pandemic, FDI in the digital economy was heavily concentrated on developed countries. The pandemic has pushed the digital adaption of the population as a whole, especially within the older generations. Three building blocks of digital economy include digital technologies, digital data and digital infrastructure. Digital technologies can lead to productivity gains across many industries. For example, artificial intelligence and big data are driving healthcare solutions and pharmaceutical research. Design and manufacturing rely more and more on algorithms. Future technologies such as quantum computing and applications powered by advanced robotics have been specially emphasised in the Society 5.0 guide by the Japanese Cabinet Office because of the enormous potential driving productivity and coping with ageing and shrinking population. In recent years, policy makers have tried to develop rules to regulate collection, storage and use of data in order to protect national security, privacy and consumer choice. With regards to digital infrastructure, countries such as Germany, Japan and the UK have reviewed FDI mechanism to tackle the intensified geopolitical tension and future competitiveness.
Thirdly, many developed countries actively try to channel inward FDI to regional development, important for equality, sustainability and social inclusion. Some policy makers have specifically highlighted its significance for an ageing population. The ongoing pandemic demonstrates the importance of resilient regional development. Countries should further support and empower regional development agencies to recognise unique context and opportunities, develop suitable ecosystems and attract investment. The return of talents and younger people to the regions can enrich diversity of communities and resolve some issues of business succession. After the pandemic, we might also see investments into tourism, transportation and housing pick up again and boost regional economies.
Finally, start-ups are seen as the growth engines in the Fourth Industrial Revolution. They drive the development of technologies and innovations that are have become so important to help with the many challenges we face, which include population ageing. Many of the largest companies by market capitalisation (right now) were founded only a few years ago (for example, in December 2020, 17 years old Tesla is worth as much as the largest nine car companies combined, including 83-year old Toyota, 104-year old BMW and 112-year old GM). Some research even pointed out that elder population can stay competitive and highly motivated but they often need entrepreneurial leaders, which often come from start-ups. While the inward FDI has been declining sharping because of the global pandemic, investments into start-ups remain resilient. The competition to attract start-ups is intensifying amongst countries and main cities. While start-ups keep growing, they bring enormous benefits to local and national economies. To win over research institutes, venture capital and accelerators (the ecosystem for start-ups), countries and cities need to be proactive in (i) developing real depth in human capital, (iii) promote market potential and (iii) supporting the scope for growth.
Ageing populations can be effectively steered into drivers for positive social and economic changes in developed countries. The investment themes of healthy living, digital economy, regional development and start-ups will continue to be attractive and relevant in an ever changing world. While many countries are preparing to attract inward FDI for post COVID 19 recovery, they can take the unique window of opportunity to prioritise these themes, strengthen sustainability and equality while safeguarding national security considerations.
About the Authors:
Luc Yao is a Visiting Fellow at the Oxford Institute of Population Ageing. Luc is based in Darmstadt, Germany and is active in the electronics industry, related start-ups, and the Open Innovation networks. His research at the Institute focuses on the adjacent domains of population ageing, innovations and strategic investments.
Opinions of the blogger is their own and not endorsed by the Institute
Comments Welcome: We welcome your comments on this or any of the Institute's blog posts. Please feel free to email comments to be posted on your behalf to administrator@ageing.ox.ac.uk or use the Disqus facility linked below.
