WORKSHOP ON INTERNATIONAL INVESTMENT POLICIES, INVESTMENT PROMOTION STRATEGIES AND SUSTAINABLE DEVELOPMENT Latest developments: investor targeting, aftercare and IIAs By: Natalia Guerra 22 November 2012 Casablanca, Morocco
Three generations of investment promotion policies FDI inflows have been aided by three generations of investment promotion policies: 1. Liberalization of FDI regimes 2. Active marketing of countries as investment locations 3. Targeting foreign investors at the industry and company levels
First generation The first generation of investment promotion policies includes liberalizing FDI regimes, reducing barriers to inward investment, improving standards of treatment for foreign investors and enhancing the functioning of markets. The annual number of countries that introduced regulatory changes for FDI increased from 43 in 1992 to 80 in 2004, its peak, with 166 (144+20) changes. 2008 the lowest since 2001 with only 41 countries; 2010 57 countries and 2011 down to 44. (SEE PAGE 76 of WIR 2012) At the same time, with the pursuance of the crisis, there is a recent trend towards increased investment regulation.
Recent FDI policy trends National regulatory changes, 2000-2011 (per cent) Source: UNCTAD, 2011. Investment liberalization and promotion have continued to figure prominently on the policy agendas, but the long-term trend of investment policies is becoming more balanced.
Why do countries sign IIAs?
IIAs and investment promotion strategies
Second generation Today, investment promotion is perceived by most governments as a necessary public function. There is a fast-growing number of investment promotion agencies (IPAs). Almost every country has an institution that promotes FDI at the national level, and there are hundreds of subnational IPAs around the world. The World Association of Investment Promotion Agencies (WAIPA), founded in 1995, had 73 member agencies in the year of its establishment. In 2011, there are 249 WAIPA members.
IPAs are active in the marketing of countries: Ghana: Africa s golden gateway. (Ghana Investment Promotion Centre, Ghana) subnational entities: Rajasthan's business environment is powered by an enterprise-friendly government, good infrastructure and a young and highly skilled workforce. (Bureau of Investment Promotion, Rajasthan, India) and cities: London & Partners connects international businesses to London, helping them set up, succeed and grow. (London & Partners, London, UK) Image building
Marketing tools The website is the IPA s shop window and needs to provide relevant information: contact info, incentive programmes, tax rates, recent announcements, industrytargeted information, map of territory, largest employers, area colleges and universities. Proactive tools: advertising & public relations, inward missions, seminars and trade fairs, telemarketing & mailshots, databases, company visits, working with intermediaries. The use of social media can support IPAs in their activities: LinkedIn, Facebook, RSS Feeds, Twitter, YouTube, blogs, search engines, geographic information systems, online webinars, virtual familiarization tours
Third generation Investment promoters take the enabling framework and a proactive approach as a starting point and proceed to target foreign investors at the industry level. Governments follow national strategies to attract FDI in specific sectors to help achieve economic development objectives, cluster development and strengthen country/ location brands. Investor targeting strategies and techniques are increasingly used by IPAs in their work.
Why investor targeting? Offers best prospects for success in the growing international competition for FDI Helps to achieve strategic development goals Improves efficient use of limited resources Enhances the understanding of corporate requirements by IPAs and governments Provides the opportunity to target companies with good corporate governance records
The Investor Targeting Process - Research - Intelligence gathering - Applied analysis 1. Market/sector research 2. Lead generation 3. Lead validation 4. Meeting prospects - Meetings - Follow up - Business case 5. Proposals & business case - New Investments - Expansions - Aftercare 6. Negotiations 7. Closure 8. Account management Source: OCO Global
Investment facilitation IPAs can assist foreign firms to identify potential locations and investor opportunities, meet regulatory criteria, fast-track investment approval processes and link with local suppliers. Information provision Assistance with contacts One-stop-shop services Assessment of labour Infrastructure service needs Follow-up and Investor aftercare
Rationale for aftercare The business case for aftercare Established TNCs are a captive audience Aftercare is less costly than attracting new investors Satisfied TNCs become ambassadors for a location Aftercare contributes to an IPA s policy advocacy work The economic development case Strategically chosen interventions can support economic development objectives. Potential benefits of FDI can be increased through effective aftercare programmes: technology transfer, international business linkages, university links in R&D, etc.
The importance of established investors In 2010, UNCTAD estimated that there were nearly 104,000 TNCs with approximately 890,000 foreign affiliates worldwide. In a 2007 IPA survey, respondents estimated that about 32% of inward FDI came from reinvestment.
Source: South Korea Foreign Investment Ombudsman Annual Report 2011 South Korea's experience
The role of aftercare IPAs can play a key role in softening the impact of an economic crisis on local economies through efforts to retain the operations of established investors and prevent conflicts and/or pre-empt Investor-State disputes. Investor aftercare programmes are the main instrument for such retention and prevention efforts and to devise policy advocacy strategies that improve the investment climate still pursuing for sustainable development and inclusive growth.
Policy advocacy vs. other IPA functions In most functions, IPAs: Deal with investors Have public policy as a background Market the country on its strengths Get around its weaknesses In policy advocacy, IPAs: Deal with policy makers and stakeholders Try to change policy Try to create new strengths Try to remedy weaknesses
The goals of policy advocacy Improve the investment climate to attract good quality/ better inflows of FDI. (National and international regulations) Promote policies that will allow greater benefits to be extracted from FDI and other forms of investment. Eventually provide grounds for IIAs renegotiation. Build national competitiveness in a global economy.
A four step approach to policy advocacy
The role of aftercare in policy advocacy Policy advocacy efforts often originate with aftercare service provision as a reaction to specific complaints by individual investors or groups of investors. Providing aftercare services to investors gives IPAs detailed knowledge about the problems that investors face in their day-to-day operations. This detailed knowledge enables them to be effective policy advocates while top government officials often don t know what obstacles confront investors.
Implications of the financial crisis for IPAs Due to the crisis, Governments need to reduce the number of industries targeted for FDI and focus on investments that bring economic growth and sustainable development. Targeting efforts have made a shift from the West to the East and South, with more promotional activities directed at emerging economies. The crisis increased the need for investment retention through aftercare services (long-term view). There is a role to play for IPAs through policy advocacy to inform policy makers on measures that facilitate FDI and on the reverse effects of those which are restrictive.
and new developments in investment promotion Countries are looking for new competitiveness clusters: Strategies to attract green investment (through a conducive policy framework, market creation mechanisms, diffusion of new technologies and a well-designed investment promotion programme) Special economic zones (SEZs) are being increasingly used as a means to develop new clusters, attract green FDI and create high-skilled jobs (green SEZs, CleanTech parks). IPAs should also evaluate the potential of non-equity modes of international production a middle ground between FDI and trade. (See WIR 2012 page 20)
Conclusions Investment Policies shall define clearly sustainable development objectives and the investment promotion strategy shall identify the role that FDI can effectively play to achieve them. There is a need for legal and regulatory frameworks that harness the role of FDI in sustainable development through guaranteeing policy space. Due to the crisis, many Govenrments now focused on investment retention through aftercare. Aftercare can also provide valuable inputs to policy advocacy towards national regulations changes and - IIAs design, negotiation and renegotiation- an area where there is still much room to develop.
IIAs related conclusions A major deficiency in most IIAs dealing with investment promotion related issues is their lack of specificity They often provide no details on the pre-conditions and modalities of the investment promotion activities agreed upon Strenghening investment promotion provisions will contribute to more balanced IIAs (currently the provisions favour the capital exporting country) It will also increase the impact of IIAs on the attraction of FDI geared to sustainable and inclusive development.
22