By leveraging a comprehensive approach that addresses the legal, regulatory, procedural and institutional barriers affecting all phases of the investment lifecycle, the World Bank Group helps countries establish a competitive investment climate that is favorable for attracting, retaining and leveraging investment for business-led growth.
Why it matters:
Many developing country governments face difficulties in investment policy formulation, coordination and implementation, thus undermining their competitiveness and compromising their ability to attract investment and achieve their goals for growth. Attracting foreign direct investment (FDI) helps link a country’s domestic economy to global value chains in key sectors. Increased exports mean more jobs. Supply chain spillovers also lead to economic diversification, the development of new technologies, and improvements in business practices. These benefits flow from clear and effective implementation of investment strategies and policies that respond to the realities and aspirations of the client country.
The Investment Policy and Promotion (IPP) team works with client countries to define their value proposition as an attractive investment location. Investment policies must be tailored to fit client needs be continually revised to take into account economic and business changes. Especially in countries with a reputation as difficult places to invest, governments should market opportunities to investors in sectors and sub-sectors with comparative advantages.
The Investment Policy and Promotion Logical Framework helps policy makers focus on the right combination of variables affecting how developing countries insert themselves into the international economy. The framework comprises three key ideas: (i) Sound policies should connect foreign and domestic investment, not favor one over the other; (ii) FDI comes in many forms with varying effects on socio-economic development requiring tailored policies based on a typology of FDI; and (iii) investments are more than just transactions; they entail relationships between multiple stakeholders throughout the varying stages of the investment lifecycle. The IPP team assists clients in several ways:
- Developing an FDI Strategy and Investment Reform Map, setting priorities for investment policy and promotion reform agendas at both economy-wide and sector levels.
- Improving the effectiveness of policies and efforts aimed at attracting and facilitating FDI, including establishing enhanced investor entry regimes, streamlining investment procedures, and enhancing investment promotion capacity.
- Promoting good practices in improving the effectiveness of investment incentives, including helping clients identify whether and how incentives contribute to FDI inflows and policy objectives such as employment generation, export promotion, and sustainable development.
- Helping clients retain and expand FDI by strengthening investor confidence through such steps as reducing the risk of expropriation and by promoting best practices in investment grievance management.
- Promoting good policies and practices in maximizing linkages and positive spillover effects of FDI for the local economy. Many developing countries seek to gain FDI spillovers through distortive policies such as local content performance requirements. Often these end up discouraging FDI.
- Helping clients participate in wider regional markets for investment through regional integration processes that promote greater FDI flows within and into a region.
Because governments often have only a narrow window of opportunity for reform, the IPP team is geared to respond swiftly to client demand, leveraging expertise from across the Bank Group to deliver integrated, multi-instrument solution that lead to coordinated effort by different line ministries and agencies. An engagement begins with a diagnostic analysis of the client’s FDI data, strategies and policies and helps prioritize short- medium-, and long-term reforms. The team then works with the client through each step of the process toward a clear set of targets and measurable results.
In Turkey, FDI policy and legislative reform removed minimum investment requirements and screenings for FDI approvals. A simple registration system was established leading to a tenfold increase in FDI flows. Mongolia eliminated screening for FDI approvals and boosted investor confidence by protecting more than $10 billion of existing FDI stock from being subject to expropriation. In Brazil, the Bank Group team helped build the capacity of APEX, Brazil’s investment promotion intermediary, and two state-level investment promotion intermediaries in Para and Pernambuco, leading to significant new investment in these remote northern frontier states. To foster transparency, the IPP team helped Kosovo post online all existing investment incentives at local and national levels of government. In 2015, Georgia transformed its tax ombudsman into a Business Ombudsman (BO) agency with direct access to the prime minister’s cabinet. The agency helps protect the rights and interests of entrepreneurs and investors doing business in Georgia.
Christine Qiang, Practice Manager, Investment Climate (IC)
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The false debate: Choosing between promoting FDI and domestic investment by Cecile Fruman and Xavier Forneris (IPP)
Why does efficiency-seeking FDI matter? by Cecile Fruman (IPP)
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