Trends and Practices in investment promotion

Mike PfisterInvestment Division

OECD

2nd ASEAN-OECD Investment Policy Conference10-11 December 2014, Jakarta

• A 10% increase in an investment promotion budget can lead to a 2.5% increase in FDI*

• 170 national and 260 sub-national IPAs have been established to facilitate, promote and attract FDI*

• 83% of executives responsible for selecting where to invest indicated that they normally consult IPAs directly during the selection process*

• Assistance and information by the government through an IPA had a considerable influence on decisions as to where to invest (based on an analysis of 30 000 FDI projects with high levels of high value-added activities)*

• *Source ICA 2014

Some figures…

Analysing country experiences: the role of investment promotion and facilitation

..but good practices for attracting and retaining investment

No one-size-fits-all solutions

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Examples from:•OECD Investment Policy Reviews,•Advisory work on investment promotion•2 Dec, Paris, seminar with IPAs (Canada, Chile, UKTI, Czech Invest, Business Sweden, IDA Ireland)

• Investment leads• Prospective

Missions in key markets

• Representations abroad

• Back-to-back calls• Marketing &

communications (website, brochures, market information, contacts)

Regular co-ordination with

agencies & institutions (including,

Ministries, R&D and academic institutions)

Regions & provinces

Local business community,

business associations

Investment Promotion

Agency

International Domestic

Strategy development

Marketing

After-care

Policy Advocacy

Sales

Functions

Promotion / Facilitation

LINKAGES

• Some empirics reveal that aftercare / policy advocacy appears to have the strongest impact on FDI inflows, followed by image-building, investor servicing, and investment lead generation.

• Information & Sales Packs• Investment plans• Policies and incentives• Procedures and

requirements• Progress and achievements• Create awareness

Image Building

• Advertizing and PR• Information & Marketing• Missions & Events• Company targeting• Company visits• Follow-up

Lead Generation and Targeting • Information provision

• Assistance with contacts• One-stop-shop services• Assessment of manpower,,

Infrastructure service needs• Follow-up

Investor Servicing

• Continued “account executive attention”

• “Ombudsman” role and trouble-shooting function

• Follow-up on manpower, infrastructure, service needs

Aftercare and Policy Advocacy

Prioritising IPA activities

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For IPA activities: •About 50% of FDI is re-invested earnings

•Encouraging re-investment is less costly and complex than attracting new investors

•Satisfied clients are an IPA’s best promotion tools

For the host economy:•Strengthening links between foreign companies and the local economy, e.g. through the development of local production chains and further GVC integration

•Creating a reputation of a host government that takes care of its foreign investors

•Higher likelihood of high-value added activities (e.g. R&D, innovation) in expansion and re-investments

United Kingdom Trade and Investment (UKTI)– Strategic relationship management for major companies: bringing

together different government agencies to improve the relationship with major companies

– Key accounts for 150 target companies and “virtual teams”

Aftercare: Increased focus on investor retention

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• Identification of key markets and investors, proactive reaching out to investors, direct marketing

• A way to optimise IPA resources and services, but…

– Difficult to get right

– Can be very costly, adaptation to changes in global demand, is the labour market flexible enough?

• But increasing investment into target sectors should not happen at the expense of supporting sectors the economy functions as a whole

• Policy evolution example: The case of manufacturing

Services are essential to the success of manufacturing

• Policies to enhance the absorptive capacity of the domestic economy through training and human capital development are superior to “picking winners”

Invest in Canada– 14 sectors: no focus on natural resource sectors as investors analysis

show that investors come anyway

Targeting: a fine line to optimise limited resources

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IPAs to be strong advocate for FDI : addressing the current problems that companies face and improving long-term competitiveness

Advocating for policies to improve the business climate

• infrastructure• legal framework• education• training• red tape and

bureaucracy – “investment irritants”

• to attract more investment• to fully reap the benefits

from inward investment• to improve the country’s

global position

IPAs are well-placed to identify issues in the investment environment and advocate

for enabling policies

Improvements in

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Assessing whether IPAs are doing the right thing and doing it right

Performance evaluation

Investment indicators:

• number of new investment projects

• value of new investment projects

• number of direct jobs created

• Impact of investment

• Linkages

• Potential for expansion

Activity indicators:

• number of events or meetings organised

• number of event attendees

• referrals to local partners

• client satisfaction

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Careful: Focus on measuring IPA’s role in facilitating investments, be careful of what you can deliver – risk of overpromising!

International good practice:

IDA Ireland

•Broad and sophisticated set of indicators

•Beyond the activities of the IPA, assess the impact of investment on national economic and development objectives

Performance and evaluation

• Reflect the agency’s strategic objectives outlined in the IDA Ireland Strategy - Horizon 2020

o attracting investment outside the largest cities o attracting investment in the areas of research,

development and innovation

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• Linkages policies need to address challenges for both quality and quantity

• Quality of suppliers: skills development using MNEs in developing curriculum for training suppliers (Penang Skills Development Center)

• Quantity: financial support to support SMEs in producing volumes (advance contract, co-operation with banks etc..)

• Inter-ministerial cooperation : Invest in Canada’s works with Industry Canada to identify clusters and local partners, size and profile of structure /functions

• Cluster example: Automotive sector in Czech republic

– Illustration of top sector expertise in an IPA

– Key criteria: Cluster must have training facility

– Czechinvest also offer consulting services to companies

Encouraging linkages and clusters

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• Increase intra-ASEAN investment

• Enhance RVCs/GVCs

• How can competing investment destinations co-operate? – GVCs offer opportunity = not a zero sum game

– Joint investment promotion missions/activities?

• ASEAN desk at IPAs?

• Forum to discuss intra-ASEAN challenges?

Attracting investment into the ASEAN region

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Let’s discuss…

Mike Pfister: mike.pfister@oecd.org

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