Investment Consulting Associates - ICA june 2015

Transcription

1 Investment Consulting Associates - ICA june 2015 Amsterdam Belfast Boston Dubai Hyderabad Johannesburg Miami New York

2 Foreign Direct Investment: Concepts & Tools Workshop Presentation Warmia and Mazury Economic Forum June 10-11, 2015 Charles Krakoff, Investment Consulting Associates 2

3 CONTENTS What is FDI? What is FDI? FDI benefits: The host country view Types of FDI The FDI decision: Investors view Defining the FDI value proposition Pictures: oilnews.kz, Astana Times, Promoting and attracting FDI 3

4 FDI: DEFINITIONS FDI is an international financial flow with the intention of controlling or participating in the management of an enterprise in a foreign country Kenichi Ohno Greenfield FDI Equity Acquisition Reinvestment of Profits Foreign investors invest and build a new factory or facility Wholly-owned, joint venture or PPP Acquisition of shares of an existing or new enterprise Usually involves some degree of control active, not passive investment Existing foreign investor invests in expansion or new project(s) Source: Kenich Ohno, Japan National Graduate Institute for Policy Studies 4

5 What (emerging/transition) countries hope to get from FDI ONE DOLLAR OF FDI IS WORTH NO MORE (AND NO LESS) THAN ONE DOLLAR OF ANY OTHER KIND OF INVESTMENT DANI RODRIK, 2003 Host Country Problem Low Productivity Lack of Financial Means Lack of market knowledge & access Unemployment and/or poverty Lack of business sophistication/ innovation FDI Contribution Know-how and technology Local subcontracting & sourcing Greater access to capital markets Lower interest rates Integration in intl. supply chains International market presence Jobs & skills development Employment & income multiplier effects Skills development Entrepreneurship opportunities Know-how and technology 5

6 Different kinds of companies have different reasons to invest internationally Motivation/Examples Resource-seeking Efficiency-seeking Market-seeking Strategic asset- seeking Access to natural resources Mining, oil & gas, timber, some agriculture Lower-cost production (cheap labour or other Garments, inputs) electronics assembly, aluminum smelting Market size, growth, demographics Consumer goods, automotive Improve knowledge base or competitive position Microsoft-Skype & Nokia acquisitions Source: Lin Cui, Klaus E. Meyer and Helen Wei Hu; TBA research/analysis 6

7 Companies go through a common FDI decision process Decision Points Decision Criteria Do we invest internationally? Corporate Strategy *Source: : UNCTAD, World Bank Market Access Resources Efficiency Strategic Assets Project Location Priorities Project Requirements Market Size/ Structure Consumer preferences Inputs cost, quality, availability Historical, cultural, ethnic factors Mkt. access Long List of Locations Location Aspects Market Size/ Structure Business Environment Inputs cost, quality, availability Quality & cost of infrastructure Market Access & Regional Integration 7 Short List of Locations Location Aspects II Business Environment, Policy framework Inputs cost, quality, availability Quality & cost of infrastructure Business facilitation Incentives Preferred Location What do we require to locate here? Business facilitation Incentives

8 Investment decisions are driven by economic, policy, and promotion considerations Host country policy and facilitation determinants Type of FDI Host country economic determinants *Source: : UNCTAD, TBA research Policy framework for FDI Economic, political, and social stability Business regulation and investor protection Non-discrimination against foreign investors Trade policy Taxation Business facilitation Investment promotion Investment facilitation Investment incentives Administrative efficiency) Social amenities & quality of life Investor after-care Resourceseeking Marketseeking Efficiencyseeking Strategic Assetseeking Market size and growth Access to regional and global markets Country-specific consumer preferences Structure of markets Raw materials & resources Labor Physical infrastructure Cost of resources and assets listed above, adjusted for labor productivity Other input costs (e.g., transport and communication Regional trade integration Technological, innovative, and other created assets (for example, brands) Competitive position 8

9 BUT INVESTORS DO NOT ALL LOOK FOR THE SAME THINGS The value of particular location advantages varies for multinational enterprises with different attributes It is the interaction between location and firm-specific attributes, rather than each of these independently, that affects location choices. So a location must: 1.Identify its unique location advantages 2.Identify target industries and specific investors that advantages 3.Build on and strengthen those advantages seek those *Source: :L. Nachum & C. Wymbs ((2002), University of Cambridge 9

10 Example: Mangystau Oblast, Kazakhstan Location Advantages and Possible Target Industries Advantages Hub of Eurasian transport corridor Kazakhstan s main ports, SEZ Large regional oil and gas industry Potential Industries to Attract FDI Transport and Logistics services Development (via PPP) of transport infrastructure Transport and Logistics Value added processing of imports and exports Oil and gas service and supply Ship building and repair Oil & gas service and supply Upstream petroleum production Downstream petroleum industries Plentiful wind and sunshine Alternative energy production and technology Low-cost desalination Caspian coastline and beaches Tourism Fisheries/aquaculture Source: In-country interviews and experts discussions 10

11 Each of these potential industries must be analysed and benchmarked against competing locations to develop a value proposition Analyse Benchmark Synthesize Results Sector Identification Identify competing Identify unique Identify most locations selling propositions important factors Obtain cost & Select most for each sector productivity data promising target SWOT analysis Interview companies industries Operating cost that invested Comparative model Location rankings / evaluation by Interview attractiveness indices location for each companies WEF & Doing Business industry selected that did/didn t invest rankings Detailed value propositions for selected industries Promotional tools (brochures, presentations, web sites) Reports prepared for specific investors 11

12 The Investment Promotion Framework 1. Strategy 2. Analysis & Organization 6. After-care & Policy Advocacy 3. Marketing 5. Investment Facilitation Source: Henry Lowendahl, A Framework for Investment Promotion Text 4. Investor Targeting 12

13 Investment promotion can have a big impact on the level of foreign direct investment in a location World Bank studies show that a 10% increase in an investment promotion budget leads to a 2.5% increase in FDI. FDI can make a strong contribution to the local economy. It is estimated that US$1 in FDI leads to US$1 in domestic investment. The net present value of proactive investment promotion is almost US$4 for every US$1 expended There are many cost-effective ways to promote investment, and we will address those in a subsequent workshop *Source: Murat Seker, World Bank (2009) 13

14 CONTACT DETAILS Investment Consulting Associates - ICA H.J.E. Wenckebachweg AS Amsterdam The Netherlands T: F: E: info@ic-associates.com I: Washington St, Unit 201 Newton Lower Falls, MA United States T: F: E: info@ic-associates.com I: 14