Global Best Practices in

Investment Promotion

Fabrizio Opertti

Chief, Trade & Investment Unit (TIU)

Integration and Trade Sector (INT)

Inter-American Development Bank

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• Information asymmetries and financial constraints continue to constrict the market

• The potential for positive externalities make FDI a public good deserving of public

investment

• In a recent survey of US multinationals:

o 2/3 report working directly with investment promotion agencies (IPAs) on their

investment decision

o Only 8% did not contact an IPA

Introduction – the investment promotion rationale

In spite of increasing globalization, FDI has not achieved its

potential due to market failures

Investment promotion is essential to attracting FDI in the

competitive global market

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Building blocks of FDI promotion

Incentives

Sector-Specific Advantages

Costs (direct & indirect)

Business Climate

Page 4

The short-term implementation challenge

High

Low

Low

Impact on

Investor

Decisions

Promotion

Agency

Influence

High

Incentives

Sector-Specific

Advantages

Costs (direct & indirect)

Business Climate

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Intermediating role of a successful investment promotion agency

Investment

Climate

Incentives

Sector-Specific

Advantages

Costs (direct & indirect)

Business Climate

influence policy

priorities

communicate to investors

collect investor

feedback

Investors

Investment

Promotion

Agency

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Optimize & innovate to stand out from the crowd

Optimize

Target

Facilitate

Innovation

in Promotion

“Outlier”

Global Best Practices in Investment Promotion

• Build institutional capacity

• Optimize incentives

• Target sector-specific promotion

• Facilitate business & reduce transaction costs

• Engage non-traditional investment partners

Build Institutional Capacity

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Build investment promotion agency (IPA) capacity

• Information

dissemination • Website

• Information

architecture

• Market research

• Marketing • Country & sector

Branding

• International presence • Missions

• International events

External communication

• Availability

• Inquiry response time

• Effectiveness of

message

• Quality of market

information

• Maintenance of

communication and

follow-up

• Aftercare

Relationship-building

Responsiveness

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Global investment promotion agency (IPA) capacity

Global Investment Promotion Benchmarking (IFC 2009)

1. Austria

2. Sweden

3. Germany

4. Canada

5. United

Kingdom

6. France

7. Latvia

8. Ireland

9. Spain

10. Costa Rica

11. Nicaragua

12. Lithuania

13. Australia

14. Hungary

15. Turkey

16. Colombia

17. New Zealand

18. Brazil

19. Finland

20. Czech

Republic

regional national

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Technology can increase scale of audience

Largest-scale outreach via technological platforms:

• Websites – National (IPAs)

– Regional (ConnectAmericas)

• Sector-specific networks of investors – O2LAC community

• Lead generation & tracking software

• Monitoring & evaluation that record aftercare

activities and results

Medium-scale outreach:

• Country & sector branding

• Matchmaking events • O2LAC: pre-screen & panel

Small-scale (but high-impact):

• Commercial missions

• Individual outreach

& partnering

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Example: sector branding – Philippines excellence

“Experience Excellence. Experience the

Philippines.”

“Excellent English. Excellent Talent.

Excellent Services. Experience

Excellence. Experience the Philippines.”

sector branding

country branding

• Be able to substantiate claims

• Align talent development with market positioning

Tips

Optimize investment incentives

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Optimize investment incentives

Can incentives be targeted to meet particular goals?

Methods to make

incentives more

effective:

• Explicit contracts with

performance requirements (e.g.

number of employees hired to

qualify; relocation banned for

certain time period) and

monitoring/disclosure

requirements

• Pay out sooner rather than

later (due to high discount rates

applied by firms), except in

cases of R&D, training, or if

using performance requirements

• Variable pay for FDI promotion

intermediaries

• Incentives are not a large factor in

overall investment location decision, but

rather a differentiator between finalists

• Have become more important over

time as capital is increasingly mobile;

more options/competition

• However, as more locations offer

incentives, they become less effective at

influencing location decision

Target sector-specific promotion

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Target sector-specific promotion In

tern

ally

Promote a competitive organizational culture:

Implement internal controls and key performance indicators

Deepen organizational knowledge of key sectors

Regio

nally

Create strategic alliances with the private sector in specific sector clusters

Foster regional cooperation among IPAs on promotion of priority sectors

Inte

rnationally

Be specific and reasonable in marketing & branding efforts

Work to promote a sector brand and improve international perceptions

IPA role in sector promotion

• An investment promotion strategy should detail target sectors

• Promotion activities are then targeted to the needs of those sectors

• Sector-specific approaches include elements of:

Training ■ Infrastructure ■ Marketing

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Philippines call centers: targeted promotion of priority sector

Fiscal incentives

• Technical Education Skills and

Development Authority (TESDA)

provides call center industry skills

testing and training on scholarship

– Promotes both language & technical

(hardware/software) skills

• Trade Union Congress of the

Philippines (TUCP), in cooperation

with BPO industry, conducts 100-hour

call center communication program

Training

• Receive minimum of 4 years free of

income tax

• Permanent 5% tax rate on gross

income for locating in economic zones

Non-fiscal incentives

• Visa facilitation & special non-

immigrant multiple entry visa for

economic zone investors, employees,

and their spouses & children

IMPACT

2004-2008: 250% growth of employment

in contact support segment

2011: Philippines surpasses India

to become #1 global

provider of call centers

+ 250% in

4 years!

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Ireland: sector strategy & importance of aftercare

• Ireland identified business services and ICT as priority sectors in strategic plan

• Pursued Symantec even though the work to be done in Ireland was initially low-

value added because it fit within their sector strategy

• Aftercare was the key to Symantec moving high value-added investment into

Ireland

• Be strategic about companies to pursue, taking a long-term view of the development of target sectors

• Aftercare (maintaining the IPA-investor relationship and addressing longer-term needs) is key to transitioning to higher value added

Tips

Facilitate business & reduce transaction costs

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Facilitate business & reduce transaction costs

• Long-term IPA role is via the feedback loop:

• Short- to medium-term:

make things easy for investors

influence policy

priorities

communicate to investors

collect investor

feedback

Investment

Promotion

Agency

Issue Faced How to Facilitate

Transportation “Concierge” approach: airport pickup, site visits, …

Infrastructure

Sector-specific approach: tech/industrial parks, plug-

and-play centers, special economic zones …

Access to human capital Public-private workforce training (IDB LAC: “finishing

schools”; US: “boot camps”); locate training and R&D

at site of special economic zone, develop clusters, …

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How Korea became an “outlier” in FDI promotion

Project Manager provides traditional promotion services: market info, site selection assistance, introductions to business partners & officials,

consultation on incentives, and administrative support

Engage non-traditional investment partners

• Diaspora

• SMEs

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Engaging non-traditional investment partners

• 215 million people live away from their

home country, a number which has

doubled over the last 25 years

• In the United States alone, there are

50.5 million Latinos

• Migration and remittances are

increasingly a two-way street

“Latin America has become a destination as well as a departure point for enterprising migrants”

- The Economist, April 2013

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Benefits of diaspora engagement – the ideal investor profile

Global success stories

• Indian diaspora invested

$2.6 billion out of $10

billion in FDI in India

1991-2001

• Armenia: DDI accounted

for 25% of total FDI

1998-2004

IDB diaspora initiatives

• Component of Colombia

global services loan:

mapping, profiling,

matchmaking, matching

grants for collaboration

• Central American

online diaspora

marketplace (in

development)

DDI

Brain Gain

Technology Transfer

Skills Transfer

Diplomatic Effect

Catalytic Effect

Stable Investment

Diaspora Direct Investment (DDI)

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A model for DDI promotion: STARTUP Chile

US$40,000 of equity-free

seed capital

Temporary 1-year visa to develop their projects for six months

Access to the most potent social and

capital networks in the country

≈300 startups from 30+ countries

(2011)

• STARTUP Chile program created by Chilean government, executed by CORFO

via InnovaChile

• Attracts early stage, high-potential entrepreneurs to “bootstrap” their startups in

Chile, using it as a platform to go global

• Participating entrepreneurs are selected by an admission process conducted by

Silicon Valley experts and a Chilean innovation board with strong global mindset

• Convert Chile into the innovation and entrepreneurial hub of Latin America

• 1,000 “bootstrappers” by end of 2014

goals

about

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Engaging non-traditional partners

Suppliers

• 94% of businesses in Latin America and the Caribbean are

considered SMEs key players in the value chain for any

potential investor

Partners (joint ventures)

• Need further support to attract investment and connect with

international markets

Investors

• SMEs have historically faced barriers to investment (e.g.

collateral requirements for finance; inability to independently

perform due diligence) that are increasingly being addressed

• a platform sponsored by the IDB that will offer SMEs from Latin America and the Caribbean an online ecosystem where they will be able to establish

business links with clients, suppliers and investors from the rest of the region and the world, access relevant information and training tools to make

international trade transactions simpler and less costly, and obtain information about trade finance opportunities.

ConnectAmericas (IDB)

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http://www.iadb.org

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