Trade and investment challenges and opportunities in the post-pandemic world
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Trade and investment
challenges and
opportunities in the
post-pandemic world
SUPPORTED BY
Trade and investment challenges and
2
opportunities in the post-pandemic world
The pandemic has transformed the global We would like to thank the following
trade and investment landscape, but offers experts for their insights:
unique opportunities to agile and resilient
businesses in sectors of the future. Toby Baker, Programme Manager, Nesta
‘Trade and Investment Challenges and Charlotte Crosswell, Chief Executive,
Opportunities in the Post-pandemic World’ Innovate Finance
is an Economist Intelligence Unit (EIU) Poppy Gustafsson, Chief Executive, Darktrace
report, supported by the Department for
International Trade (DIT). Through a range Jeff Maggioncalda, Chief Executive, Coursera
of expert interviews, secondary literature
Elliot Rose, Cyber and Data Privacy Expert,
review and a data audit, this paper aims to
PA Consulting
explore the impact of the Covid-19 pandemic
on the international trade and investment Jan Schoenig, Director, Smart Cities, Logistics
landscape, as well as challenges and and Mobility, Siemens Advanta Solutions
opportunities in the post-pandemic world.
The report focuses on four sectors Julie Snell, Chair, Scotland 5G Centre
identified as having high growth potential:
Dr. Robert Wardrop, Co-Founder and
Cybersecurity, FinTech, EdTech,
Director, Cambridge Centre for Alternative
and Smart Cities.
Finance (CCAF)
Matus Samel is the author, editor
and project lead of the report.
Jeff Salway is the contributing writer
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Executive Summary
When the coronavirus crisis unfolded in payments platforms), producing fresh usage
early 2020 it was immediately clear that it and performance data that helps strengthen
would have a lasting and fundamental impact the case for investing in innovation.
on the trade and investment landscape.
Green agenda – Sustainability is central
Certain industries and sub-sectors have to pandemic recovery plans in both the
been hit particularly hard by the effects of public and private sectors. From smart
the pandemic. Some will take longer than city projects in transportation, energy and
others to bounce back, and may look quite waste management to upskilling workers
different once they do so. for renewable industry jobs and facilitating
green investments, the sustainable economy
But in many cases, the future will be shaped will be powered by new technologies.
by the pandemic’s effect of deepening several
existing trends, not least the acceleration of
digital transformation by months or even years.
The challenges:
After all, from General Motors and ARM to
Microsoft and Uber, some of the best-known 1) The digital divide – The pandemic has
names in business emerged during some of exacerbated the effects of digital inequality,
the steepest downturns in modern history. with lack of access to the internet proving
to be a formidable obstacle to services,
In analysing the effects of the coronavirus learning and engagement. It is also a barrier
crisis, a number of themes stand out, with to progress in all of the sub-sectors we
an overarching pattern of existing trends assess in this report.
accelerating rapidly. We can break these down
broadly into opportunities and challenges. 2) Social inequality – The growing digital
divide is among several factors accelerating
existing socioeconomic problems during
the pandemic. Others include widening
The opportunities:
inequalities in terms of access to healthcare
Digital transformation – Governments, and education, jobs and incomes (due
businesses and individuals have turned partly to increased automation), and
increasingly to digital technologies to the disproportionate effect of lockdown
navigate their respective lockdowns, from measures on the elderly, clinically
the online learning systems provided by vulnerable, and people with disabilities.1
education technology (EdTech) providers All represent obstacles to recovery and
to the cybersecurity services that have challenges for both public and private
enabled many to work remotely. investors to address.
Data – The increased dependence on digital 3) Access to financing – While early-stage
services has driven growth in a number firms already in funding cycles have often
of sectors and sub-sectors (e.g. financial been able to secure further financing, start-
technology (FinTech), particularly digital ups were hit hard by a slowdown in
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
early-stage funding in the first half of 2020.
More than 1,000 tech start-ups filed for
administration, liquidation or dissolution
in the UK alone in the six months after the
first lockdowns were implemented.2
Securing longer-term patient capital
represents a significant challenge for some
companies and industry segments too.
We have identified four key sectors that
are particularly well positioned to benefit as
the downturn begins to subside and to lead
the recovery: Cybersecurity, FinTech, EdTech,
and Smart Cities.
In this report we take a look at the current
state of play in each sector, how they are faring
during the pandemic, and the opportunities
and challenges they face in 2021 and beyond.
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Introduction
Global foreign direct investment (FDI) flows fell slowdown was sharper in some sectors than
sharply in the first half of 2020 as the coronavirus others – while the automotive and energy
pandemic affected economies worldwide. sectors were hit hard, sectors including office
and communication equipment and saw
FDI flows were down 42% in 2020, compared
imports increase in mid-2020.
with the previous 12 months, reflecting a market
slowdown in existing investment projects and The World Investment Report cautions that
a reassessment of new spending.3 The fall was supply and demand pressures mean that
steepest in developed countries, where flows FDI is unlikely to recover until at least 2022,
were down 69% to an estimated US$229bn. with lockdown measures halting existing
investment projects and the threat of a lasting
The decline was felt across all areas of FDI –
recession casting a cloud over new spending.
cross-border mergers and acquisitions (M&A)
The Economist Intelligence Unit (EIU) forecasts
fell 10%; new greenfield investment project
that total global trade volumes will recover by
announcements were down 35%; and there was
slightly less than 7% in 2021, from an estimated
a 25% drop in newly announced cross-border
project finance deals in the first six months of contraction of more than 10% in 2020.
2020 before a sharp uptick in the second half. Nevertheless, international trade and
Similarly, global trade in goods was expected investment flows will play an important
to fall by 5.6% over the year, the biggest fall role in driving the economic recovery,
since the banking crisis in 2009, while the with each new challenge presenting new
2020 decline in services trade was estimated opportunities for innovative, forward-thinking
at 15.4%, the steepest drop in 30 years.4 The businesses. The EIU expects the preservation
Global investment flows declined rapidly
Global FDI flows (US$ bn)
2500
2000
1500
1000
500
0
2014 2015 2016 2017 2018 2019 2020(e)
Source: UNCTAD, January 2021
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Global trade will take time to recover from the unprecedented shock
World trade in goods (% annual change)
8
6
4
2
0
-2 2016 2017 2018 2019 2020 2021 (f) 2022 (f)
-4
-6
-8
-10
-12
Source: The Economist Intelligence Unit, January 2021
of remote working and social-distancing That much is evident already in the four
measures in most markets in 2021, along sectors we assess in this report, all of which are
with the continued 5G rollout, to boost meeting the needs of businesses, governments
global demand for digital equipment and and communities in ways that herald a brighter
services, to the benefit of competitive future once the recovery begins.
manufacturers and service providers.
The investment and trade opportunities that
arise as economies and consumers begin to CYBERSECURITY
recover from the crisis will also be shaped to
a considerable degree by the sustainability As the world becomes more interconnected,
agenda. A number of countries are focusing pandemic recovery plans push for greater
on measures that can drive sustainability digitalisation, and our dependence on
while creating jobs, income and growth. The technology continues to grow, so too does
EU stimulus package, South Korea’s green our exposure to cyberthreats. For instance,
new deal, the UK’s green industrial revolution, the SolarWinds cyber-attack in the US, which
South Africa’s green recovery blueprint, and was recently linked to a known Russian
Indonesia’s green recovery strategy are just hacking group, put 18,000 of the tech firm’s
some examples of the sustainability-focused government and corporate clients at risk.5
programmes unveiled in 2020. Consequently, cybersecurity is a multi-faceted
issue of vast importance that reaches far
A range of industries will benefit from such beyond the boundaries of the technology
initiatives, not least the technology segments industries, and issues such as safety and data
engaged in energy, smart city technologies, privacy have gained priority on government
green investments, and financing for innovation. agendas around the world.
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Cybersecurity and coronavirus
The cost of cybercrime
has escalated in recent years The World Health Organisation (WHO)
Estimated global cost of cybercrime (US$ trn) reported in early April 2020 that it had
seen a fivefold increase in the number of
cyber-attacks directed at its staff, as well
as scammers impersonating the WHO
targeting the public at large. Coronavirus
3 6 10.5
was referred to in more than 900,000 spam
messages, 700 malware attacks, and 48,000
malicious domains discovered by Interpol’s
2015 2021 2025 (f) private sector partners alone in the first
four months of 2020.8
Source: Cybersecurity Ventures, 2020
Almost all company chief executives surveyed
in mid-2020 for PwC’s annual Global Digital
The current state of play Trust Insights report said they shifted their
cybersecurity strategy due to the pandemic,
One estimate by Cybersecurity Venture and 40% said they were accelerating the
suggests that in 2021 the overall global costs digitisation of their organisation.9
of cybercrime damages might reach US$6trn.6
The average cost (including lost revenues and
costs of remediation) of breaches disclosed
by public firms hit $116m in 2019, a figure Opportunities and challenges
likely to have been exceeded in 2020.7 While organisations are raising their game in
While the proportion of firms reporting the prevention and mitigation of cyberthreats,
a cyber-event fell from 61% in 2019 to the nature of those attacks will invariably
39% in 2020, according to the Hiscox 2020 continue to evolve.
Cyber Readiness Report, the financial Among the cyberthreats that firms expect to
impact of each breach was much greater. face in the coming years are attacks on cloud
However, it also reported a rise in the services, “disruptionware” targeted at critical
number of organisations with the capabilities business operations, and ransomware.10
to tackle cyberthreats, reflecting greater
recognition of the consequences of With huge numbers of employees still working
inadequate protection and investment. from home, ensuring that remote workforces
are secure is an ongoing challenge. Similarly, as
Financial services are a case in point people rely increasingly on digital services, there
according to Elliot Rose, Cyber and will be pressure on e-commerce and payment
Data Privacy Expert at PA Consulting. platforms to tackle the ever-growing threat of
“Organisations that have direct contact credit card fraud and similar criminal activity.
with customers or had financial information
from them tend to pay more attention “Organisations need security that can
to cybersecurity,” he said. “In more identify threats that have never been seen
traditional industries they have tended before and are behaving anomalously,”
not to regularly take cyber issues into said Poppy Gustafsson, Chief Executive at
board meetings, though I suspect the Darktrace. “AI [artificial intelligence] is able
pandemic is starting to change that.” to detect these anomalous patterns of
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
behaviour, and also respond to the attack greater trust between countries and industries
itself, at computer-speed, which is critical if that momentum is to be maintained.12
in containing ransomware.”
Cyberthreats and opportunities in
cybersecurity are inextricably linked. The investment landscape
With companies having to digitally adapt The market for cybersecurity solutions had
faster than ever to remain relevant, an estimated worth of around US$1trn
cybersecurity is a key enabler for the between 2017 and 2021.13 The US continues
global transition to digital dependency. to account for the largest share, led by the
There is clearly room for improvement, likes of Cisco, Palo Alto Networks and Fortinet,
however. While just 4% of companies surveyed and it also leads the way in spending, followed
by Asia Pacific and Europe.14
by McAfee claimed not to have experienced
any sort of cyber incident in 2019, more than Markets outside the US are catching up.
half of those organisations said they did not For example, the number of cybersecurity
have plans to both prevent and respond to companies registered in the UK jumped
cyber incidents.11 by 44% between 2018 and 2019, while UK
cybersecurity exports rose 90% in the same
There is a broader cooperation challenge too.
period.15 Cyber was the UK’s fastest growing
Cybersecurity firms often deal with national
start-up market during the pandemic, with
infrastructure issues that involve both public
almost £500bn (US$684bn) raised in the
and private sectors, frequently across a
first half of the year alone.16
number of countries and regulatory systems.
Yet international coordination remains patchy. According to McKinsey, the majority of chief
While information sharing has increased since executives plan to increase their cybersecurity
the start of the pandemic, according to the budgets in 2021, even where business
World Economic Forum there is a need for revenues are under pressure. Much of the
Demand for cybersecurity is also expected to grow significantly
Global spending of information security (US$ bn)
101.5 114 124 170.4
2017 2018 2019 2022
Source: Cybersecurity Ventures, 2019
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
spending will be focused on areas such as
network security, endpoint security, identity Case study:
and access management, and messaging Darktrace
security.17 Half of UK organisations surveyed
for PwC’s Cybersecurity Strategy 2021 report Hackers are increasingly targeting
claimed that cyber would now be baked favoured methods of communication
into all business decisions.18 as they evolve their techniques to
exploit changes in online behaviours.
Organisations are investing in AI
technologies to identify new coronavirus- The past year has seen a sharp increase
related attacks, such as targeted email in coronavirus-related email threats
campaigns masquerading as vaccine news, that aim to take advantage of the trust
which are now among the World Economic established between colleagues.
Forum’s top societal risks.
Around 60% of advanced spear phishing
There is also a growing emphasis on ensuring attacks blocked in April 2020 by Antigena
that staff are equipped to take their own Email, Darktrace’s AI email solution,
cybersecurity measures. “Organisations need either related to coronavirus or aimed
to give people the tools and training to enable to trick employees by referencing remote
them to be trusted,” said Mr Rose. “Investment working, according to the firm.
in getting this right will reap rewards for those
“In one case, a patient attacker
companies over the coming years.”
impersonated a company board member
and a chief executive with a well-timed
and topical email thread to extract
information from a senior finance team
member over multiple days,” said Poppy
Gustafsson, Chief Executive at Darktrace.
“Fortunately, new Cyber AI email
technologies can spot these account
takeovers, protecting the inbox before
information lands.”
Organisations need
security that can identify “AI learns what is normal, and then
relearns it, and relearns – so it is
threats that have never
constantly re-evaluating its assumptions,”
been seen before and are
explained Ms Gustafsson. “It is for this
behaving anomalously" reason that enterprise AI adoption is likely
Poppy Gustafsson to soar in the uncertain years ahead.”
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
FINTECH platforms, with the likes of Google, Amazon
and Apple launching payment services, and
Less than a decade ago the FinTech sector firms including Tencent and PayPal investing
was a niche space dominated by a small in FinTech enterprises.
number of powerful players alongside a
handful of growing start-ups. Now it is at
the heart of the financial services industry’s
FinTech and the pandemic
digital transformation and houses a range
of fast-growing sub-segments, from Research published in summer 2020
insurance, payments and regulatory suggested that just 3% of UK FinTechs
technology (regtech), to banking and lending, had at that point been critically or severely
wealth tech and financial infrastructure. affected by the pandemic, adding that the
sector was better positioned than most to
weather the storm.21
The current state of play The impact varied between sub-sectors.
For example, parts of the alternative lending
The global FinTech market was estimated segment, such as P2P (peer-to-peer) funding
in 2019 to be worth more than US$111bn, models, suffered as a result of the broader
with a forecast market value of more than challenges in the fundraising environment,
$325bn by 2030.19 China and the US are as lending to businesses (and individuals)
currently the world’s largest FinTech markets, in general became less appealing.
with China dominating in digital payments
and the US leading in the personal finance In the UK, some were also affected initially by
segment.20 But the sector is expected to the launch of government finance initiatives
grow rapidly around the world. that reduced SME (small and medium-sized
enterprise) demand for alternative sources, until
Over the past five years the sector has been the government moved to include non-bank
increasingly influenced by global technology lenders in its pandemic-related lending schemes.
The value of FinTech solutions is expected to increase rapidly
Global FinTech Market Size (US$ bn)
111.2 158 191.8 325.3
2019 2023 2025 2030
Source: The Business Research Company, 2020
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opportunities in the post-pandemic world
At the same time, however, the pandemic “There has been a real uplift around regtech,
accelerated demand for e-commerce and e-commerce and payments, while facial
digital payments. In the UK, it was estimated recognition, onboarding and so on also went
that some 6m adults downloaded an online very well and attracted a lot of investment,”
banking app for the first time in 2020.22 said Charlotte Crosswell, Chief Executive of
Among over-65s in the UK, 52% used banking Innovate Finance, a FinTech industry body.
apps during the pandemic, with 21% using
them more often, and 23% feeling more
confident when using the technology.23
Opportunities and challenges
In terms of broader FinTech adoption, the
The pandemic cemented some of the
European business-to-consumer sub-sector
challenges already facing the sector, such
saw a 72% rise in the use of FinTech apps in
as access to funding for early-stage ventures
the months after the pandemic began, while
and the viability of certain lending models.
there were sharp upticks in adoption in Japan,
South Korea, the US and China when global “If the business model was reliant on
lockdowns began.24 25 continuing to generate new lending and
management fees, you have a challenge,”
Research carried out by the Cambridge Centre
pointed out Dr Robert Wardrop,
for Alternative Finance (CCAF) in autumn 2020
Co-Founder and Director of the CCAF.
found that sectors including regtech, digital
payments, digital savings and wealth tech all The outlook varies considerably between
reported year-on-year growth in transaction sub-sectors. Opportunities are evident in
volumes in the first half of 2020, whereas areas such as wealth management, as asset
digital lending firms saw transaction levels fall. managers move to digital offerings, and
insurance technology (insurtech), where
Digital payment platforms in particular
funding levels rose sharply in 2020.26 The
are crucial to tackling a financial inclusion
sub-sector is expected to become more
problem exacerbated by the pandemic and
prominent as the insurance industry looks
helping to distribute funds to those outside
to embrace digitisation and technology to
the banking system.
improve customer experiences and keep up
with evolving demands.27
Consumers are the world are Accordingly, regulators are under
rapidly adopting FinTech solutions pressure to adjust their policies in order
Global consumer FinTech adoption rate (%) to help firms address the issues raised by
the pandemic. The ability of FinTech firms
to accelerate the adoption of digital finance
channels is a case in point. Research by
the CCAF identified an inverse relationship
16 33 64 between the stringency of coronavirus
measures and stringency in regulatory
requirements for onboarding or
2015 2017 2019 accommodating more people to
use digital channels.
Source: EY, 2019
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
“In areas such as the eKYC [electronic know US$1,025m) in 2020, while the UK’s Starling
your customer] process and onboarding, there Bank and Germany’s N26 also attracted
have been big challenges in breaking down significant investments during the year.29 30
financial inclusion,” said Dr Wardrop. “So the
The past couple of years have also seen
pandemic became an enabler because the
more large institutions investing in FinTechs
policy stance changed.”
as part of their digital transformation,
including BlackRock’s stake in wealth
management start-up Scalable Capital, and
The investment landscape
JPMorgan Chase’s acquisition of financial
While companies already established in the adviser tax strategy tool 55ip. The wealth
funding cycle were largely able to secure tech space is expected to attract further
finance, early-stage ventures were hit by a investment in 2021, as asset managers
marked slowdown in financing in the early part respond to customer demand for digital
of 2020 in particular. However, financing in the wealth management and rising interest in
sector overall remained largely resilient in 2020 the green investment agenda.
despite the effects of the pandemic. Global
FinTech investments reached US$44bn across The chief ongoing challenge for UK FinTechs is
more than 3,000 worldwide deals over the finding sources of patient, long-term capital –
year. The table was led by the US, accounting one reason why around half of the investment
for $22bn, followed by the UK, with $4.1bn in the sector comes from overseas. “Growth
invested in over 400 deals, and then Indonesia capital is a real challenge in the UK and the
funding gap has increased,” said Ms Crosswell.
and India.28 Digital banking investments have
been prominent, reflecting the growth in But it’s a different matter in developing
demand during the pandemic. UK challenger markets. FinTechs are helping to satisfy growing
bank Revolut raised around £750m (over and unmet demand for banking services and
Global FinTech investment remained relatively resilient during the pandemic
Venture capital and private equity investment in FinTech, by country (US$ bn)
Sweden 1.3
Germany 1.4
Indonesia 2.6
India 3.3
UK 4.1
US 22
Global 44
Source: Innovate Finance, 2020
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opportunities in the post-pandemic world
There are significant regional
differences in FinTech adoption Case study:
Consumer FinTech adoption rate by country (%) FinTechs and the pandemic
FinTechs helped bridge a number of gaps
87
that opened up when the coronavirus crisis
87
unfolded so dramatically in early 2020.
82
82 One such example was in providing
76 lines of credit to workers in the so-
75
called gig economy, including the
73
self-employed who missed out on
72
government support packages.
71
71 By the end of March 2020 a consortium
67 of UK FinTechs, including Fronted, Credit
67 Kudos, Coconut and 11:FS, had created
67 the Covid Credit platform, which used
67
open banking data to help the self-
66
employed prove their incomes had been
64
impacted by the pandemic.
64
64 A similar project saw the rapid launch of
64 an origination and underwriting platform
58 allowing banks and lenders to virtually
56
and digitally deploy funds to businesses
51
facing cash-flow problems as a result of
50
coronavirus. The taskforce, comprising
46
FinTechs such as Trade Ledger, Nimbla,
42
Wiserfunding and NorthRow, stated that
35
it could support a range of loans and
34
make funds available within days.
Source: EY, 2019
financial products in countries experiencing
a rapid proliferation of smartphones and
improving internet connectivity.31
“There is an important story of developing We’re seeing that in
versus developed markets in terms of FinTech some of the big recent
investment,” according to Dr Wardrop. announcements, such as
“We’re seeing that in some of the big recent investments in payment
announcements, such as investments in businesses in Africa"
payment businesses in Africa.”
Dr Wardrop
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opportunities in the post-pandemic world
EDTECH
Education
10 spending will
With advances in digital platforms, continue to grow dramatically
connectivity and data analytics, technology Global Education Expenditure (US$ trn)
has long had the potential to disrupt and
transform education. EdTech refers to
7.5
the fusing of information technology with
educational theory and practice in order to
facilitate learning. Providers operate broadly
across four sectors: early childhood, K-12
(kindergarten to 12th grade), higher 5
education, and lifelong learning.
2.5
The current state of play
EdTech has long been used by schools,
employers and individuals to help teach
subjects, train staff and enhance skills,
0
knowledge and qualifications. The sector has
gained particular traction over the past decade 2000 2005 2010 2015 2020 2025
as a result of greater government spending,
increasingly sophisticated technology, and the Source: Holon IQ
reduced costs of devices and internet data.
key roles as the crisis unfolded in early
Spending on education and training by
2020: from producing course materials and
governments, parents, individuals and
activities and providing academic support,
corporates rose from US$3.5trn in 2005
to facilitating assessment and enabling
to over $5trn in 2020 and is expected to
access to remote learning, typically free
reach over $7trn by 2025.32
of charge (at least initially).
Adoption of online learning apps has grown
For example, the use of some online
rapidly, and tools such as e-textbooks and
programmes to learn maths rose by 700% when
curriculum management software have
UK schools closed in March 2020, according to
become more effectively integrated into
research by Nesta, the innovation foundation.34
education processes.
More than 70% of UK schools provided digital
resources through online learning platforms
after the pandemic forced them to close,
EdTech and coronavirus
Office for National Statistics research shows,
Worldwide lockdowns were a catalyst for while 28% of schools provided real-time
the rapid adoption of remote and digital interactive learning online.35 It is estimated
education solutions, with more than 1.5bn that more than 90% of the world’s school and
students in more than 190 countries affected university students have used some form of
by partial or full school closures, according to digital tool to continue learning from home
UNESCO. 33 EdTech start-ups quickly assumed during the pandemic.36
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opportunities in the post-pandemic world
Dozens of countries in both developed But the pandemic has also highlighted the
and developing markets used educational limits of EdTech, most notably in terms of
technologies to provide remote learning unequal access to technology within and
opportunities while schools were closed between countries and communities. “There
during 2020, with the World Bank listing is a ‘digital divide’ between richer and poorer
examples from Afghanistan to Zimbabwe.37 families with unequal access to hardware,
such as laptops or tablets,” according to
EdTech has played a vital role in other settings Toby Baker, Programme Manager at Nesta.
too. The pandemic has driven up demand
across the board and at every level, from For example, in the UK, during 2020 just 1%
early years learning to employee upskilling, of primary state schools had provided their
according to Jeff Maggioncalda, Chief Executive pupils with devices that they could take home,
of Coursera, a US online course provider. compared with 38% of private primary schools,
according to a survey conducted by Microsoft.40
“As a business that has a catalogue of
4,500 courses offered to individuals,
governments, businesses and education
campuses around the world, we have The investment landscape
seen major growth in all of those.” Technology will continue to play a vital role
in the delivery of education even when the
pandemic subsides, with the market expected
to be worth US$400bn by 2025.41
Opportunities and challenges
Sharp growth in the business segment is being
driven by demand from employers seeking to 500
EdTech is expanding particularly quickly
digitalise their organisation. At the government Global EdTech Expenditure (US$ bn)
level, this demand will come from attempts to
tackle unemployment after the pandemic by
400
reskilling and upskilling people for digital jobs.
Colleges and universities are consuming
online learning more than any other segment,
300
according to Mr Maggioncalda. In mid-
March 2020 Coursera launched the Campus
Response Initiative, providing universities
around the world with free access to its course 200
catalogue. More than 10,000 programmes for
colleges have been activated since the launch,
reaching more than 1.4m students.38
100
In schools, 82% of US educators surveyed
by Promethean claimed that “combining
technology use with traditional resources and
teaching methods” was the most likely trend 0
of the next ten years, with particular growth 2019 2020 2021 2022 2023 2024 2025
in remote learning, virtual learning and online
content and resources.39 Source: Holon IQ, 2020
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
The US accounts for almost half of the EdTech start-ups are emerging in developing
world’s EdTech companies, including global countries too, where the pandemic has
education platforms Coursera, Age of exacerbated existing obstacles to access to
Learning and Udemy. China is catching up education.46 EdTech plays a crucial role in
fast, accounting for eight of the 18 private helping emerging markets meet the needs of
EdTech companies with a valuation of over their fast-growing but largely under-served
US$1bn, led by Yuanfudao and Zuoyebang.42 populations, as it provides a way to reduce
costs while improving access for students and
While there are fewer “unicorns” in Europe, support for teachers and administrators.
the market there is growing rapidly. The UK,
home to the Learning Technology Group, In China, for example, the Ministry of Education
Europe’s only EdTech unicorn, leads the way, worked with stakeholders including online
with London being the only European tech platforms and course providers to plan the
hub in the global EdTech top 10.43 largest simultaneous online learning exercise in
history. The majority of firms that raised new
Globally, more than US$11.6bn was invested funds in 2020 were based in the US and most
in 516 global EdTech firms in the first half of were still in the seed-funding stage. However,
2020, according to research from Metaari, the bulk of the funds raised went to Asian “late-
driven by growth in both public equity and stage” companies, including the US$1bn raised
venture capital.44 by China’s Yuanfudao and the $750m of funding
attracted by its compatriot Zuoyebang.47
The first half of 2020 was the second-largest
half-year on record for global EdTech venture As demand continues to grow, investment will
capital, according to Holon IQ, which predicts follow. But a sector in the relatively early stages
investment of more than US$87bn in the of adoption, such as EdTech, still relies heavily on
sector over the next decade, almost three private capital. In that regard, there is a need for
times the level of the preceding ten years.45 greater diversity and sustainability of funding.
EdTech is becoming a global phenomenon
Amount invested (US$ bn) vs Number of EdTech companies invested in
4bn 250
200
3bn
150
2bn
100
1bn
50
0 0
China US India UK Rest of China US India UK Rest of
the world the world
Source: Mentaari Research, 2020
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opportunities in the post-pandemic world
SMART CITIES
Case study: Cities are at the centre of some of the most
China’s EdTech market complex challenges we face today.
The EdTech investment boom of With no aspect of city life functioning in a
2020 was led by deals involving vacuum, everything is interdependent. More
Chinese firms serving the world’s than half the world’s population now lives in
largest education market. cities and the urban population is on track to
double in size by 2050.49 Cities generate more
More than US$7.6bn was raised by the
than 80% of global GDP, yet they are also
country’s K-12 online education industry
particularly vulnerable to the effects of climate
in 2020 alone – more than the sector’s
change, pandemics, and inequality.50 Therefore,
total financing over the previous decade.
the need to ensure that urban infrastructures
Yuanfudao, a start-up founded in are sustainable and function effectively for all
2012 which offers products including of those living within them is acute.
AI-enabled virtual classes and live
The good news is that technology is
tutoring, raised US$1bn in a new round
increasingly equipped to meet this challenge
of funding in April 2020 as investors
and support urban management and planning.
responded to the demand spike resulting
from the pandemic. The funding came
from Tencent, an existing investor, and
private equity company Hillhouse The current state of play
Capital Group, taking the firm’s valuation
to $7.8bn and making it one of the Smart cities have been on the agendas
country’s biggest EdTech start-ups. of governments for many years, but efforts
to realise smart city objectives have been
Another online tutoring platform patchy and inadequately comprehensive
start-up, Zuoyebang, raised US$750m in their approach.51
in June and a further $1.6bn later in
the year, with backers including Alibaba That said, recent research by management
Group, Softbank Vision Fund and Tiger consultancy Roland Berger found that a
Global Management.48 growing number of cities around the world
are looking to adopt a more strategic approach
The company, spun off from Baidu to their smart status.52 Meanwhile, the 2020
in 2014, claims to now have more Smart City Index placed Helsinki and Zurich
than 50m daily active users and at the top alongside Singapore, in a year
over 12m paid users. that saw a number of European cities fall
down the rankings.53
Those cities leading the charge are investing in
internet-based technologies to digitalise their
infrastructure, improve sustainability, meet
demand for affordable housing, and enhance
quality of life for urban populations.
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Global urban population will continue to grow for decades to come
Share of world's population living in urban areas (%) vs Number of people living in urban areas (bn)
70%
60%
6.68bn
50%
6.31bn
5.94bn
5.56bn
40%
5.17bn
4.77bn
4.38bn
30%
3.98bn
3.59bn
3.22bn
20%
2.87bn
2.58bn
2.29bn
2.01bn
1.75bn
10%
1.54bn
1.35bn
1.19bn
1.02bn
0.75bn
0.88bn
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020* 2025* 2030* 2035* 2040* 2045* 2050*
* estimates
Source: UN Population Division
Cities including Dubai, Oslo, Copenhagen, “We have had an opportunity to press pause
London and Hamburg are also at various on smart cities, especially in the UK,” said Julie
stages of implementing smart city projects Snell, Chair of the Scotland 5G Centre and
in areas such as transport networks, energy previously Chief Executive of Bristol is Open.
grids, logistics, waste management, health
services and security. Even so, most projects The pandemic has highlighted two
are not systematic enough. areas in particular need of investment in
more joined-up urban services, according
“In the Middle East we see a minimum of 10 to to Ms Snell: the digital divide, and
15 large proposals on entire smart cities set-ups environmental sustainability.
across all functionalities,” said Jan Schoenig,
Director, Smart Cities, Logistics and Mobility at “The digital divide has come straight
Siemens Advanta Solutions. “We don’t see such to the surface in this crisis, from its
things in Europe, where it is still very much user effect on education and our ability to work
case-driven than entire platform strategies.” from home, to the elderly who can’t manage
their healthcare remotely or order groceries,”
she explained.
Cities and coronavirus Cities have also seen how short-term
The pandemic may accelerate more behaviour changes can produce immediate
systematic smart city strategies, as it has environmental benefits, with a reduction
highlighted the need for coordinated and in the number of people travelling into city
more sophisticated urban services, not least centres resulting in reduced carbon
in healthcare, housing and transport. emissions and cleaner air.
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
But while the technology and data required to
integrate smart cities undoubtedly exists, there
is also a need to address community concerns
The digital divide has
such as those around data and privacy,
come straight to the surface
according to Ms Snell.
in this crisis, from its effect
on education and our ability “We know the technology works, but we
to work from home, to the haven’t worked out how people can make
elderly who can’t manage the most of it without it feeling like it intrudes
on their lives,” she explained.
their healthcare remotely
or order groceries"
Julie Snell
The investment landscape
Funding for smart city developments continues
to be driven primarily by public sources, such as
regional and national governments, with much
Opportunities and challenges of the impetus from broad-based programmes
The global smart cities market size is expected such as the EU’s Green New Deal.
to grow from US$410.8bn in 2020 to $820.7bn
Funding for smart city developments can be
by 2025, according to Markets and Markets, led
hard to secure, given impediments including
by investments in smart transportation.54
difficulties in monetising projects and the
A number of markets have built their use cases uncertain return on investment. As a result,
around smart mobility to deal with traffic financing can be fragmented unless it is
congestion (i.e. smart parking, smart traffic powered primarily by government funding.
guidance, and combining different means of
transportation), while the challenge of coping
with increased demand for electric vehicle Market for Smart Cities solutions
charging is high on many agendas. is expected to double by 2025
Global Smart Cities Market size (US$ bn)
With the UN Sustainable Development Goals
(SDGs) playing a key role in political agendas,
the environment is a prominent theme in
smart city developments.
“If you take digital and ‘clean’ you have a 410.8 820.7
political case,” says Mr Schoenig. “If there’s
a business case in the clean area, that’s
where the investment is going.”
2020 2025
He expects investment to move towards
cities carrying out better simulations and
to be targeted at asset monitoring. Source: Markets and Markets, 2020
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
The main financing options typically chosen
by smart city projects are public and private
Case Study:
funding (41%), a mix of public funds (19%),
state grants (15%), regional grants (11%), and Singapore
private financing (10%).55
Heavy investment in digital innovation
Financing smart city projects can be distinctly and technology under the Smart Nation
complex. With government and city budgets initiative launched in 2014 saw Singapore
stretched by the demands of the pandemic, the come top of the global Smart City Index
costs of smart city innovation will likely be spread again in 2020.56
more broadly over the coming years, with a
Singapore has invested in a range of
greater emphasis on public–private partnerships.
interconnected projects aimed at
As financial institutions focus more on responding to the changing needs of
sustainability and social factors when making citizens. These include an autonomous
investment decisions, there is also a growing fleet of vehicles for transporting the city’s
interest in equity and debt products that elderly and disabled residents; wearable
can enable investors to participate in the Internet of Things devices to monitor
development of smart, integrated cities. the health of patients and transmit
data to their therapist; a programme to
support the upskilling of professionals
and students in AI; and the use of sensor
data from public transport and vehicles
to improve transport planning, with one
outcome being a 92% decrease in the rate
of over-crowded buses.57
The Smart City Index, which Singapore
also topped in 2019, stated that there was
a clear link in 2020 between cities that
had invested in smart city technologies
and those that had handled the
coronavirus outbreak effectively.58
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
Conclusion
The acceleration of the digital transformation,
increased dependence on digital services,
and a greener agenda will be key outcomes
of the pandemic, should coronavirus-related
obstacles like the digital divide, deepened
social inequalities and stifled access to finance
be properly addressed. With that in mind, four
sub-sectors have emerged as key to the digital
transformation and global trade and finance
recovery efforts: Cybersecurity, Financial
Technology (FinTech), Education Technology
(EdTech), and Smart Cities.
© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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opportunities in the post-pandemic world
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© The Economist Intelligence Unit Limited 2021Trade and investment challenges and
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The findings and views expressed in the report do not necessarily
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