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 2021


Executive Summary
When the coronavirus crisis unfolded in
early 2020 it was immediately clear that it
would have a lasting and fundamental impact
on the trade and investment landscape.
Certain industries and sub-sectors have
been hit particularly hard by the effects of
the pandemic. Some will take longer than
others to bounce back, and may look quite
different once they do so.
But in many cases, the future will be shaped
by the pandemic’s effect of deepening several
existing trends, not least the acceleration of
digital transformation by months or even years.
After all, from General Motors and ARM to
Microsoft and Uber, some of the best-known
names in business emerged during some of
the steepest downturns in modern history.
In analysing the effects of the coronavirus
crisis, a number of themes stand out, with
an overarching pattern of existing trends
accelerating rapidly. We can break these down
broadly into opportunities and challenges.
The opportunities:
Digital transformation – Governments,
businesses and individuals have turned
increasingly to digital technologies to
navigate their respective lockdowns, from
the online learning systems provided by
education technology (EdTech) providers
to the cybersecurity services that have
enabled many to work remotely.
Data – The increased dependence on digital
services has driven growth in a number
of sectors and sub-sectors (e.g. financial
technology (FinTech), particularly digital
Trade and investment challenges and
3
opportunities in the post-pandemic world
payments platforms), producing fresh usage
and performance data that helps strengthen
the case for investing in innovation.
Green agenda – Sustainability is central
to pandemic recovery plans in both the
public and private sectors. From smart
city projects in transportation, energy and
waste management to upskilling workers
for renewable industry jobs and facilitating
green investments, the sustainable economy
will be powered by new technologies.
The challenges:
1) The digital divide – The pandemic has
exacerbated the effects of digital inequality,
with lack of access to the internet proving
to be a formidable obstacle to services,
learning and engagement. It is also a barrier
to progress in all of the sub-sectors we
assess in this report.
2) Social inequality – The growing digital
divide is among several factors accelerating
existing socioeconomic problems during
the pandemic. Others include widening
inequalities in terms of access to healthcare
and education, jobs and incomes (due
partly to increased automation), and
the disproportionate effect of lockdown
measures on the elderly, clinically
vulnerable, and people with disabilities.1
All represent obstacles to recovery and
challenges for both public and private
investors to address.
3) Access to financing – While early-stage
firms already in funding cycles have often
been able to secure further financing, start-
ups were hit hard by a slowdown in
© The Economist Intelligence Unit Limited 2021
 Trade and investment challenges and
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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 2021


Introduction
Global foreign direct investment (FDI) flows fell
sharply in the first half of 2020 as the coronavirus
pandemic affected economies worldwide.
FDI flows were down 42% in 2020, compared
with the previous 12 months, reflecting a market
slowdown in existing investment projects and
a reassessment of new spending.3 The fall was
steepest in developed countries, where flows
were down 69% to an estimated US$229bn.
The decline was felt across all areas of FDI –
cross-border mergers and acquisitions (M&A)
fell 10%; new greenfield investment project
announcements were down 35%; and there was
a 25% drop in newly announced cross-border
project finance deals in the first six months of
2020 before a sharp uptick in the second half.
Similarly, global trade in goods was expected
to fall by 5.6% over the year, the biggest fall
since the banking crisis in 2009, while the
2020 decline in services trade was estimated
at 15.4%, the steepest drop in 30 years.4 The
Global investment flows declined rapidly
Global FDI flows (US$ bn)
2500
2000
1500
1000
500
2014 2015 2016 2017 2018 2019
Source: UNCTAD, January 2021
Trade and investment challenges and
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opportunities in the post-pandemic world
slowdown was sharper in some sectors than
others – while the automotive and energy
sectors were hit hard, sectors including office
and communication equipment and saw
imports increase in mid-2020.
The World Investment Report cautions that
supply and demand pressures mean that
FDI is unlikely to recover until at least 2022,
with lockdown measures halting existing
investment projects and the threat of a lasting
recession casting a cloud over new spending.
The Economist Intelligence Unit (EIU) forecasts
that total global trade volumes will recover by
slightly less than 7% in 2021, from an estimated
contraction of more than 10% in 2020.
Nevertheless, international trade and
investment flows will play an important
role in driving the economic recovery,
with each new challenge presenting new
opportunities for innovative, forward-thinking
businesses. The EIU expects the preservation
2020(e)
© The Economist Intelligence Unit Limited 2021

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
-4
-6
-8
-10
-12
Source: The Economist Intelligence Unit, January 2021
of remote working and social-distancing
measures in most markets in 2021, along
with the continued 5G rollout, to boost
global demand for digital equipment and
services, to the benefit of competitive
manufacturers and service providers.
The investment and trade opportunities that
arise as economies and consumers begin to
recover from the crisis will also be shaped to
a considerable degree by the sustainability
agenda. A number of countries are focusing
on measures that can drive sustainability
while creating jobs, income and growth. The
EU stimulus package, South Korea’s green
new deal, the UK’s green industrial revolution,
South Africa’s green recovery blueprint, and
Indonesia’s green recovery strategy are just
some examples of the sustainability-focused
programmes unveiled in 2020.
A range of industries will benefit from such
initiatives, not least the technology segments
engaged in energy, smart city technologies,
green investments, and financing for innovation.
Trade and investment challenges and
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2020 2021 (f) 2022 (f)
That much is evident already in the four
sectors we assess in this report, all of which are
meeting the needs of businesses, governments
and communities in ways that herald a brighter
future once the recovery begins.
CYBERSECURITY
As the world becomes more interconnected,
pandemic recovery plans push for greater
digitalisation, and our dependence on
technology continues to grow, so too does
our exposure to cyberthreats. For instance,
the SolarWinds cyber-attack in the US, which
was recently linked to a known Russian
hacking group, put 18,000 of the tech firm’s
government and corporate clients at risk.5
Consequently, cybersecurity is a multi-faceted
issue of vast importance that reaches far
beyond the boundaries of the technology
industries, and issues such as safety and data
privacy have gained priority on government
agendas around the world.
© The Economist Intelligence Unit Limited 2021

The cost of cybercrime
has escalated in recent years
Estimated global cost of cybercrime (US$ trn)
3 6 10.5
2015 2021 2025 (f)
Source: Cybersecurity Ventures, 2020
The current state of play
One estimate by Cybersecurity Venture
suggests that in 2021 the overall global costs
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
likely to have been exceeded in 2020.7
While the proportion of firms reporting
a cyber-event fell from 61% in 2019 to
39% in 2020, according to the Hiscox 2020
Cyber Readiness Report, the financial
impact of each breach was much greater.
However, it also reported a rise in the
number of organisations with the capabilities
to tackle cyberthreats, reflecting greater
recognition of the consequences of
inadequate protection and investment.
Financial services are a case in point
according to Elliot Rose, Cyber and
Data Privacy Expert at PA Consulting.
“Organisations that have direct contact
with customers or had financial information
from them tend to pay more attention
to cybersecurity,” he said. “In more
traditional industries they have tended
not to regularly take cyber issues into
board meetings, though I suspect the
pandemic is starting to change that.”
Trade and investment challenges and
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opportunities in the post-pandemic world
Cybersecurity and coronavirus
The World Health Organisation (WHO)
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
was referred to in more than 900,000 spam
messages, 700 malware attacks, and 48,000
malicious domains discovered by Interpol’s
private sector partners alone in the first
four months of 2020.8
Almost all company chief executives surveyed
in mid-2020 for PwC’s annual Global Digital
Trust Insights report said they shifted their
cybersecurity strategy due to the pandemic,
and 40% said they were accelerating the
digitisation of their organisation.9
Opportunities and challenges
While organisations are raising their game in
the prevention and mitigation of cyberthreats,
the nature of those attacks will invariably
continue to evolve.
Among the cyberthreats that firms expect to
face in the coming years are attacks on cloud
services, “disruptionware” targeted at critical
business operations, and ransomware.10
With huge numbers of employees still working
from home, ensuring that remote workforces
are secure is an ongoing challenge. Similarly, as
people rely increasingly on digital services, there
will be pressure on e-commerce and payment
platforms to tackle the ever-growing threat of
credit card fraud and similar criminal activity.
“Organisations need security that can
identify threats that have never been seen
before and are behaving anomalously,”
said Poppy Gustafsson, Chief Executive at
Darktrace. “AI [artificial intelligence] is able
to detect these anomalous patterns of
© The Economist Intelligence Unit Limited 2021

behaviour, and also respond to the attack
itself, at computer-speed, which is critical
in containing ransomware.”
Cyberthreats and opportunities in
cybersecurity are inextricably linked.
With companies having to digitally adapt
faster than ever to remain relevant,
cybersecurity is a key enabler for the
global transition to digital dependency.
There is clearly room for improvement,
however. While just 4% of companies surveyed
by McAfee claimed not to have experienced
any sort of cyber incident in 2019, more than
half of those organisations said they did not
have plans to both prevent and respond to
cyber incidents.11
There is a broader cooperation challenge too.
Cybersecurity firms often deal with national
infrastructure issues that involve both public
and private sectors, frequently across a
number of countries and regulatory systems.
Yet international coordination remains patchy.
While information sharing has increased since
the start of the pandemic, according to the
World Economic Forum there is a need for
Demand for cybersecurity is also expected to grow significantly
Global spending of information security (US$ bn)
101.5 114
2017 2018
Source: Cybersecurity Ventures, 2019
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greater trust between countries and industries
if that momentum is to be maintained.12
The investment landscape
The market for cybersecurity solutions had
an estimated worth of around US$1trn
between 2017 and 2021.13 The US continues
to account for the largest share, led by the
likes of Cisco, Palo Alto Networks and Fortinet,
and it also leads the way in spending, followed
by Asia Pacific and Europe.14
Markets outside the US are catching up.
For example, the number of cybersecurity
companies registered in the UK jumped
by 44% between 2018 and 2019, while UK
cybersecurity exports rose 90% in the same
period.15 Cyber was the UK’s fastest growing
start-up market during the pandemic, with
almost £500bn (US$684bn) raised in the
first half of the year alone.16
According to McKinsey, the majority of chief
executives plan to increase their cybersecurity
budgets in 2021, even where business
revenues are under pressure. Much of the
124 170.4
2019 2022
© The Economist Intelligence Unit Limited 2021

spending will be focused on areas such as
network security, endpoint security, identity
and access management, and messaging
security.17 Half of UK organisations surveyed
for PwC’s Cybersecurity Strategy 2021 report
claimed that cyber would now be baked
into all business decisions.18
Organisations are investing in AI
technologies to identify new coronavirus-
related attacks, such as targeted email
campaigns masquerading as vaccine news,
which are now among the World Economic
Forum’s top societal risks.
There is also a growing emphasis on ensuring
that staff are equipped to take their own
cybersecurity measures. “Organisations need
to give people the tools and training to enable
them to be trusted,” said Mr Rose. “Investment
in getting this right will reap rewards for those
companies over the coming years.”
Organisations need
security that can identify
threats that have never
been seen before and are
behaving anomalously"
Poppy Gustafsson
Trade and investment challenges and
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Case study:
Darktrace
Hackers are increasingly targeting
favoured methods of communication
as they evolve their techniques to
exploit changes in online behaviours.
The past year has seen a sharp increase
in coronavirus-related email threats
that aim to take advantage of the trust
established between colleagues.
Around 60% of advanced spear phishing
attacks blocked in April 2020 by Antigena
Email, Darktrace’s AI email solution,
either related to coronavirus or aimed
to trick employees by referencing remote
working, according to the firm.
“In one case, a patient attacker
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.”
“AI learns what is normal, and then
relearns it, and relearns – so it is
constantly re-evaluating its assumptions,”
explained Ms Gustafsson. “It is for this
reason that enterprise AI adoption is likely
to soar in the uncertain years ahead.”
© The Economist Intelligence Unit Limited 2021

FINTECH
Less than a decade ago the FinTech sector
was a niche space dominated by a small
number of powerful players alongside a
handful of growing start-ups. Now it is at
the heart of the financial services industry’s
digital transformation and houses a range
of fast-growing sub-segments, from
insurance, payments and regulatory
technology (regtech), to banking and lending,
wealth tech and financial infrastructure.
The current state of play
The global FinTech market was estimated
in 2019 to be worth more than US$111bn,
with a forecast market value of more than
$325bn by 2030.19 China and the US are
currently the world’s largest FinTech markets,
with China dominating in digital payments
and the US leading in the personal finance
segment.20 But the sector is expected to
grow rapidly around the world.
Over the past five years the sector has been
increasingly influenced by global technology
The value of FinTech solutions is expected to increase rapidly
Global FinTech Market Size (US$ bn)
111.2 158
2019 2023
Source: The Business Research Company, 2020
Trade and investment challenges and
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platforms, with the likes of Google, Amazon
and Apple launching payment services, and
firms including Tencent and PayPal investing
in FinTech enterprises.
FinTech and the pandemic
Research published in summer 2020
suggested that just 3% of UK FinTechs
had at that point been critically or severely
affected by the pandemic, adding that the
sector was better positioned than most to
weather the storm.21
The impact varied between sub-sectors.
For example, parts of the alternative lending
segment, such as P2P (peer-to-peer) funding
models, suffered as a result of the broader
challenges in the fundraising environment,
as lending to businesses (and individuals)
in general became less appealing.
In the UK, some were also affected initially by
the launch of government finance initiatives
that reduced SME (small and medium-sized
enterprise) demand for alternative sources, until
the government moved to include non-bank
lenders in its pandemic-related lending schemes.
191.8 325.3
2025 2030
© The Economist Intelligence Unit Limited 2021

At the same time, however, the pandemic
accelerated demand for e-commerce and
digital payments. In the UK, it was estimated
that some 6m adults downloaded an online
banking app for the first time in 2020.22
Among over-65s in the UK, 52% used banking
apps during the pandemic, with 21% using
them more often, and 23% feeling more
confident when using the technology.23
In terms of broader FinTech adoption, the
European business-to-consumer sub-sector
saw a 72% rise in the use of FinTech apps in
the months after the pandemic began, while
there were sharp upticks in adoption in Japan,
South Korea, the US and China when global
lockdowns began.24 25
Research carried out by the Cambridge Centre
for Alternative Finance (CCAF) in autumn 2020
found that sectors including regtech, digital
payments, digital savings and wealth tech all
reported year-on-year growth in transaction
volumes in the first half of 2020, whereas
digital lending firms saw transaction levels fall.
Digital payment platforms in particular
are crucial to tackling a financial inclusion
problem exacerbated by the pandemic and
helping to distribute funds to those outside
the banking system.
Consumers are the world are
rapidly adopting FinTech solutions
Global consumer FinTech adoption rate (%)
16 33 64
2015 2017 2019
Source: EY, 2019
Trade and investment challenges and
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“There has been a real uplift around regtech,
e-commerce and payments, while facial
recognition, onboarding and so on also went
very well and attracted a lot of investment,”
said Charlotte Crosswell, Chief Executive of
Innovate Finance, a FinTech industry body.
Opportunities and challenges
The pandemic cemented some of the
challenges already facing the sector, such
as access to funding for early-stage ventures
and the viability of certain lending models.
“If the business model was reliant on
continuing to generate new lending and
management fees, you have a challenge,”
pointed out Dr Robert Wardrop,
Co-Founder and Director of the CCAF.
The outlook varies considerably between
sub-sectors. Opportunities are evident in
areas such as wealth management, as asset
managers move to digital offerings, and
insurance technology (insurtech), where
funding levels rose sharply in 2020.26 The
sub-sector is expected to become more
prominent as the insurance industry looks
to embrace digitisation and technology to
improve customer experiences and keep up
with evolving demands.27
Accordingly, regulators are under
pressure to adjust their policies in order
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
between the stringency of coronavirus
measures and stringency in regulatory
requirements for onboarding or
accommodating more people to
use digital channels.
© The Economist Intelligence Unit Limited 2021

“In areas such as the eKYC [electronic know
your customer] process and onboarding, there
have been big challenges in breaking down
financial inclusion,” said Dr Wardrop. “So the
pandemic became an enabler because the
policy stance changed.”
The investment landscape
While companies already established in the
funding cycle were largely able to secure
finance, early-stage ventures were hit by a
marked slowdown in financing in the early part
of 2020 in particular. However, financing in the
sector overall remained largely resilient in 2020
despite the effects of the pandemic. Global
FinTech investments reached US$44bn across
more than 3,000 worldwide deals over the
year. The table was led by the US, accounting
for $22bn, followed by the UK, with $4.1bn
invested in over 400 deals, and then Indonesia
and India.28 Digital banking investments have
been prominent, reflecting the growth in
demand during the pandemic. UK challenger
bank Revolut raised around £750m (over
Global FinTech investment remained relatively resilient during the pandemic
Venture capital and private equity investment in FinTech, by country (US$ bn)
Sweden 1.3
Germany 1.4
Indonesia 2.6
India 3.3
UK 4.1
US
Global
Source: Innovate Finance, 2020
Trade and investment challenges and
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opportunities in the post-pandemic world
US$1,025m) in 2020, while the UK’s Starling
Bank and Germany’s N26 also attracted
significant investments during the year.29 30
The past couple of years have also seen
more large institutions investing in FinTechs
as part of their digital transformation,
including BlackRock’s stake in wealth
management start-up Scalable Capital, and
JPMorgan Chase’s acquisition of financial
adviser tax strategy tool 55ip. The wealth
tech space is expected to attract further
investment in 2021, as asset managers
respond to customer demand for digital
wealth management and rising interest in
the green investment agenda.
The chief ongoing challenge for UK FinTechs is
finding sources of patient, long-term capital –
one reason why around half of the investment
in the sector comes from overseas. “Growth
capital is a real challenge in the UK and the
funding gap has increased,” said Ms Crosswell.
But it’s a different matter in developing
markets. FinTechs are helping to satisfy growing
and unmet demand for banking services and
22
44
© The Economist Intelligence Unit Limited 2021
 Trade and investment challenges and
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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

© The Economist Intelligence Unit Limited 2021

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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

© The Economist Intelligence Unit Limited 2021


Dozens of countries in both developed
and developing markets used educational
technologies to provide remote learning
opportunities while schools were closed
during 2020, with the World Bank listing
examples from Afghanistan to Zimbabwe.37
EdTech has played a vital role in other settings
too. The pandemic has driven up demand
across the board and at every level, from
early years learning to employee upskilling,
according to Jeff Maggioncalda, Chief Executive
of Coursera, a US online course provider.
“As a business that has a catalogue of
4,500 courses offered to individuals,
governments, businesses and education
campuses around the world, we have
seen major growth in all of those.”
Opportunities and challenges
Sharp growth in the business segment is being
driven by demand from employers seeking to
digitalise their organisation. At the government
level, this demand will come from attempts to
tackle unemployment after the pandemic by
reskilling and upskilling people for digital jobs.
Colleges and universities are consuming
online learning more than any other segment,
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
catalogue. More than 10,000 programmes for
colleges have been activated since the launch,
reaching more than 1.4m students.38
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
of the next ten years, with particular growth
in remote learning, virtual learning and online
content and resources.39
Trade and investment challenges and
15
opportunities in the post-pandemic world
But the pandemic has also highlighted the
limits of EdTech, most notably in terms of
unequal access to technology within and
between countries and communities. “There
is a ‘digital divide’ between richer and poorer
families with unequal access to hardware,
such as laptops or tablets,” according to
Toby Baker, Programme Manager at Nesta.
For example, in the UK, during 2020 just 1%
of primary state schools had provided their
pupils with devices that they could take home,
compared with 38% of private primary schools,
according to a survey conducted by Microsoft.40
The investment landscape
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$400bn by 2025.41
500
EdTech is expanding particularly quickly
Global EdTech Expenditure (US$ bn)
400
300
200
100
0
2019 2020 2021 2022 2023 2024 2025
Source: Holon IQ, 2020
© The Economist Intelligence Unit Limited 2021

The US accounts for almost half of the
world’s EdTech companies, including global
education platforms Coursera, Age of
Learning and Udemy. China is catching up
fast, accounting for eight of the 18 private
EdTech companies with a valuation of over
US$1bn, led by Yuanfudao and Zuoyebang.42
While there are fewer “unicorns” in Europe,
the market there is growing rapidly. The UK,
home to the Learning Technology Group,
Europe’s only EdTech unicorn, leads the way,
with London being the only European tech
hub in the global EdTech top 10.43
Globally, more than US$11.6bn was invested
in 516 global EdTech firms in the first half of
2020, according to research from Metaari,
driven by growth in both public equity and
venture capital.44
The first half of 2020 was the second-largest
half-year on record for global EdTech venture
capital, according to Holon IQ, which predicts
investment of more than US$87bn in the
sector over the next decade, almost three
times the level of the preceding ten years.45
EdTech is becoming a global phenomenon
Amount invested (US$ bn) vs Number of EdTech companies invested in
4bn
3bn
2bn
1bn
0 0
China US India UK Rest of
the world
Source: Mentaari Research, 2020
Trade and investment challenges and
16
opportunities in the post-pandemic world
EdTech start-ups are emerging in developing
countries too, where the pandemic has
exacerbated existing obstacles to access to
education.46 EdTech plays a crucial role in
helping emerging markets meet the needs of
their fast-growing but largely under-served
populations, as it provides a way to reduce
costs while improving access for students and
support for teachers and administrators.
In China, for example, the Ministry of Education
worked with stakeholders including online
platforms and course providers to plan the
largest simultaneous online learning exercise in
history. The majority of firms that raised new
funds in 2020 were based in the US and most
were still in the seed-funding stage. However,
the bulk of the funds raised went to Asian “late-
stage” companies, including the US$1bn raised
by China’s Yuanfudao and the $750m of funding
attracted by its compatriot Zuoyebang.47
As demand continues to grow, investment will
follow. But a sector in the relatively early stages
of adoption, such as EdTech, still relies heavily on
private capital. In that regard, there is a need for
greater diversity and sustainability of funding.
250
200
150
100
50
China US India UK Rest of
the world
© The Economist Intelligence Unit Limited 2021

Case study:
China’s EdTech market
The EdTech investment boom of
2020 was led by deals involving
Chinese firms serving the world’s
largest education market.
More than US$7.6bn was raised by the
country’s K-12 online education industry
in 2020 alone – more than the sector’s
total financing over the previous decade.
Yuanfudao, a start-up founded in
2012 which offers products including
AI-enabled virtual classes and live
tutoring, raised US$1bn in a new round
of funding in April 2020 as investors
responded to the demand spike resulting
from the pandemic. The funding came
from Tencent, an existing investor, and
private equity company Hillhouse
Capital Group, taking the firm’s valuation
to $7.8bn and making it one of the
country’s biggest EdTech start-ups.
Another online tutoring platform
start-up, Zuoyebang, raised US$750m
in June and a further $1.6bn later in
the year, with backers including Alibaba
Group, Softbank Vision Fund and Tiger
Global Management.48
The company, spun off from Baidu
in 2014, claims to now have more
than 50m daily active users and
over 12m paid users.
Trade and investment challenges and
17
opportunities in the post-pandemic world
SMART CITIES
Cities are at the centre of some of the most
complex challenges we face today.
With no aspect of city life functioning in a
vacuum, everything is interdependent. More
than half the world’s population now lives in
cities and the urban population is on track to
double in size by 2050.49 Cities generate more
than 80% of global GDP, yet they are also
particularly vulnerable to the effects of climate
change, pandemics, and inequality.50 Therefore,
the need to ensure that urban infrastructures
are sustainable and function effectively for all
of those living within them is acute.
The good news is that technology is
increasingly equipped to meet this challenge
and support urban management and planning.
The current state of play
Smart cities have been on the agendas
of governments for many years, but efforts
to realise smart city objectives have been
patchy and inadequately comprehensive
in their approach.51
That said, recent research by management
consultancy Roland Berger found that a
growing number of cities around the world
are looking to adopt a more strategic approach
to their smart status.52 Meanwhile, the 2020
Smart City Index placed Helsinki and Zurich
at the top alongside Singapore, in a year
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 2021
 Trade and investment challenges and
18
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 2021


The digital divide has
come straight to the surface
in this crisis, from its effect
on education and our ability
to work from home, to the
elderly who can’t manage
their healthcare remotely
or order groceries"
Julie Snell
Opportunities and challenges
The global smart cities market size is expected
to grow from US$410.8bn in 2020 to $820.7bn
by 2025, according to Markets and Markets, led
by investments in smart transportation.54
A number of markets have built their use cases
around smart mobility to deal with traffic
congestion (i.e. smart parking, smart traffic
guidance, and combining different means of
transportation), while the challenge of coping
with increased demand for electric vehicle
charging is high on many agendas.
With the UN Sustainable Development Goals
(SDGs) playing a key role in political agendas,
the environment is a prominent theme in
smart city developments.
“If you take digital and ‘clean’ you have a
political case,” says Mr Schoenig. “If there’s
a business case in the clean area, that’s
where the investment is going.”
He expects investment to move towards
cities carrying out better simulations and
to be targeted at asset monitoring.
Trade and investment challenges and
19
opportunities in the post-pandemic world
But while the technology and data required to
integrate smart cities undoubtedly exists, there
is also a need to address community concerns
such as those around data and privacy,
according to Ms Snell.
“We know the technology works, but we
haven’t worked out how people can make
the most of it without it feeling like it intrudes
on their lives,” she explained.
The investment landscape
Funding for smart city developments continues
to be driven primarily by public sources, such as
regional and national governments, with much
of the impetus from broad-based programmes
such as the EU’s Green New Deal.
Funding for smart city developments can be
hard to secure, given impediments including
difficulties in monetising projects and the
uncertain return on investment. As a result,
financing can be fragmented unless it is
powered primarily by government funding.
Market for Smart Cities solutions
is expected to double by 2025
Global Smart Cities Market size (US$ bn)
410.8 820.7
2020 2025
Source: Markets and Markets, 2020
© The Economist Intelligence Unit Limited 2021

The main financing options typically chosen
by smart city projects are public and private
funding (41%), a mix of public funds (19%),
state grants (15%), regional grants (11%), and
private financing (10%).55
Financing smart city projects can be distinctly
complex. With government and city budgets
stretched by the demands of the pandemic, the
costs of smart city innovation will likely be spread
more broadly over the coming years, with a
greater emphasis on public–private partnerships.
As financial institutions focus more on
sustainability and social factors when making
investment decisions, there is also a growing
interest in equity and debt products that
can enable investors to participate in the
development of smart, integrated cities.
Trade and investment challenges and
20
opportunities in the post-pandemic world
Case Study:
Singapore
Heavy investment in digital innovation
and technology under the Smart Nation
initiative launched in 2014 saw Singapore
come top of the global Smart City Index
again in 2020.56
Singapore has invested in a range of
interconnected projects aimed at
responding to the changing needs of
citizens. These include an autonomous
fleet of vehicles for transporting the city’s
elderly and disabled residents; wearable
Internet of Things devices to monitor
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 2021
 Trade and investment challenges and
21
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 2021


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17
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20
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21
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22
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23
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24
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25
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26
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27
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28
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29
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31
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Trade and investment challenges and
22
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32
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33
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34
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35
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37
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38
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learners-around-the-world-benefit-from-partner-
contributions-in-courseras-response-to-the-
pandemic/
39
https://edtechmagazine.com/k12/article/2020/11/
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40
https://news.microsoft.com/en-gb/2020/12/04/new-
report-spotlights-inadequate-access-to-technology-in-
english-schools/
41
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explain-the-global-education-technology-market/
42
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in-edtech-and-how-covid-19-is-having-an-impact/
43
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44
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funding_spikes_to_11_6_billion_in_h1_2020/
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45
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venture-capital-for-q1-2020/
46
http://uis.unesco.org/en/topic/out-school-children-
and-youth
47
https://medium.com/swlh/mapping-edtech-
investments-in-2020-where-did-the-money-go-
ac55dc737918
48
https://www.businesschief.asia/technology/education-
zuoyebang-raises-usdollar16bn-series-e-financing
49
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urbandevelopment/overview
50
https://www.wri.org/news/building-climate-resilient-
and-equitable-cities-during-covid-19
51
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Publications/The-rise-of-the-smart-city.html
52
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publication_pdf/ta_17_008_smart_cities_online.pdf
53
https://www.imd.org/smart-city-observatory/smart-
city-index/
54
https://www.marketsandmarkets.com/Market-Reports/
smart-cities-market-542.html#:~:text=According%20
to%20MarketsandMarkets%2C%20the%20
global,14.8%25%20during%20the%20forecast%20
period
55
https://www2.deloitte.com/global/en/pages/public-
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56
https://www.imd.org/smart-city-observatory/smart-
city-index/
57
https://www.thalesgroup.com/en/worldwide-digital-
identity-and-security/iot/magazine/singapore-worlds-
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smartest%20city,equivalent%20to%20US%241.73%20
billion)
58
https://www.straitstimes.com/business/companies-
markets/spore-tops-global-smart-city-index-
for-second-year#:~:text=Singapore%20has%20
topped%20the%20Smart,to%20manage%20the%20
coronavirus%20outbreak
© The Economist Intelligence Unit Limited 2021
 Trade and investment challenges and
23
opportunities in the post-pandemic world

While every effort has been taken to verify the accuracy of this
information, The Economist Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person on this report or
any of the information, opinions or conclusions set out in this report.
The findings and views expressed in the report do not necessarily
reflect the views of the sponsor.

© The Economist Intelligence Unit Limited 2021

 Trade and investment challenges and
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opportunities in the post-pandemic world

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