PROMOTING FDI IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS (FCS)STRATEGIES FOR IRAQ

OECD Iraq Conference“Improving the business and investment climate in Iraq”

Peter Davis, Private Sector Development ExpertGassia Assadourian, Policy Analyst, OECD

16. February 2015

1.WHY IS FDI IMPORTANT IN FCS?2.WHY DO COMPANIES INVEST IN FCS?

3.WHAT CAN IRAQ DO TO ATTRACT MORE FDI?

3 KEY QUESTIONS

1. WHY IS FDI IMPORTANT IN FCS?

• Foreign direct investment (FDI) can contribute to economic development and poverty reduction, with potential positive effects on peacebuilding.

• Companies can therefore impact peacebuilding…

1. Why FDI is important in FCS

Companies can impact all aspects of peacebuilding…

Economic development•Bralirwa provides livelihoods for 35,000 families•Skills training in value chain•Providing access to finance for small distributors

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•Trust and relationships – ‘connectors’ from value chains•Longevity of investment •Continued instability & dependence stems from lack of FDI Governance •Analysis of what is not working – RPSF report•Banks use international accounting standards•Encourage use of international norms eg accounting

Infrastructure •Encourage commercial value chains, eg sorghum•Physical ‘stuff’: Kivuwatt,biomass generation, water•Creation of a functioning financial services sector

2. WHY DO COMPANIES INVEST IN FCS?

• FDI in 25 countries that were classified as FCS grew at a compound annual rate of 12% compared to 4.5% growth in the rest of the world’s FDI in the period of 2005-2012.

• Untapped resources, reconstruction needs and unmet consumer demand present opportunities for domestic and foreign investors.

Fragile economies are capable of attracting FDI…

… not only in oil and gas!

A number of foreign companies are experienced and interested in investing in FCS

Source: World Bank (2014), Promoting Foreign Investment in fragile and Conflict-Affected Situations

Does Iraq target these companies?

How do these companies make their investment decisions?

Private sector in FCS – many roles

3. WHAT CAN IRAQ DO TO ATTRACT MORE FDI?

1. Focussed investor outreach• Selected (sub-)sectors• Selected companies• Regional investors• Diaspora

2. Public-private dialogue3. Continue to improve ‘Brand Iraq’

So what can Iraq do to promote FDI?

• Focus on key (sub-)sectors– Where does Iraq have a competitive advantage? Sector-

specific studies necessary.

• Target FCS-accustomed companies– Include analysis of companies comfortable with country

risk, and understand what they need.

• Regional investors– Investors from the region tend to have better knowledge

of the realities on the ground.

• Diaspora– Relatively high wealth, foreign business experience, and

potentially a personal desire to return;– Not just as financial resource, but also as marketers.

1. Focussed investor outreach

• Regional investors: – Kosovo used this approach and managed to

attract manufacturer of steel products from Bulgaria.

• Diaspora: – Afghan diaspora entrepreneur established the

first mobile services company in Afghanistan,  only one which covering all the provinces in the country;

– ‘Connect Ireland’ – diaspora as ‘connectors’ marketing Ireland to foreign companies as a place to do business.

Other country experiences…

• PPD as a structured engagement mechanism can strengthen trust between government and the business community.

• It can be critical for identifying and accelerating policy reforms.– Private sector is better placed than

governments to know what needs to be improved in the investment climate; can contribute their resources, such as research.

2. Public-private dialogue (PPD)

• Nepal Business Forum:– Pushed tax and export credit reforms,

lowering the costs for businesses by $10 million.

• Bosnia and Herzegovina:– “Bulldozer” Initiative, reformed a

number of regulatory barriers to businesses and investment in a short time.

PPD in other countries has helped push policy reforms

Why would I support a reform from my government if my government did not bother asking my opinion? I am not a politician but I

know how hard it is to run a business with the current regulations. I am not a lawyer but

I can hint at solutions that the government could decide on and implement.

Zoran Gazibaric, owner of “Nobil, d.o.o.” a mattress company, Trvanik, Bosnia and Herzegovina

The case for involving the business sector

• Realistic and objective branding and marketing of Iraq. IPAs need to open and honest about the situation. IPAs need regular dialogue with strategic investors IPAs need to understand and actively address

investors’ needs.

• Continuous efforts t0 improve the investment policy framework is crucial signal to investors, demonstrating predictability and commitment. IPAs need to take active role in helping to fix

investment climate issues.

3. Continue to improve ‘Brand Iraq’