Syndicate content

Add new comment

Do Investment Promotional Agencies Leave Investors Out in the Cold?

Paul Barbour's picture

This week, the World Bank Group’s Investment Climate Department hosted a stimulating discussion on the credit: Johanna Ljungblomeffectiveness of Investment Promotion Agencies (IPAs). The panel discussion coincided with the launch of the Investment Climate Department’s report on IPAs across the globe.  MIGA co-sponsored the report and pioneered its methodology. 

First, the bad news. This report makes for quite depressing reading for this startling finding: overall, the responsiveness of investment promotion intermediaries to investor inquiries is low, with 80% of IPAs not responding to sector-specific investor inquiries. This means that 80% of these organizations did not return a phone call or email from a foreign direct investment (FDI) “mystery shopper.” This translates to missed investment opportunities that are particularly needed now as the competition for FDI is so fierce.

But here’s the good news. The event panel noted that significant improvement in facilitation leading to winning new investment opportunities is possible, even with limited resources.

Robert Whyte, who leads this work for the World Bank, showed that effective IPAs do not need huge budgets or staff, but instead clarity of purpose and strong leadership. Nicaragua’s IPA (ProNicaragua) is a very successful example, exhibiting just such characteristics. In this year’s Global Investment Promotion Best Practices report, they were found to the ‘best overall investment facilitator’. 

Torfin Harding from Oxford University provided an academic perspective, citing evidence that IPAs do attract FDI, especially where the investment climate of the country is weak. Ravi Vish, MIGA’s Director of Economics and Policy and Chief Economist, emphasized that investors’ perceptions of political risk is heightened when there is limited information. He mentioned that, by providing information on both investment opportunities as well as key factors such as the legislative framework for FDI and arbitration arrangements, investors will become far more comfortable and amenable to setting-up shop in a country. 

The World Bank’s Executive Director for Spain, representing both the nation which had funded much of the global investment promotion benchmarking  work (Spain) as well as some countries which received high marks for their IPAs (Spain, Nicaragua), provided a useful perspective. She highlighted that IPAs alone are no panacea, but instead one useful tool in the armory of governments to attract and retain FDI.

Questions from the audience ranged across various topics including: What is the best organizational structure for an IPA – closely linked to government ministries or slightly apart? Why do some investments end up in disputes with host governments? How do IPAs navigate the unique space between the public and private sectors?

In summing up the panel all agreed on two fundamentals:

·         The investment climate is fundamentally important – marketing alone will not attract mobile FDI. (Note: The World Bank and IFC’s Doing Business initiative documents important work in this regard.)

·         Simply putting basic but specific information on a website and following up with interested investors is a cost-effective way of attracting FDI.