Transcript No Slide Title

ATTRACTING FOREIGN DIRECT INVESTMENT
YES Summit,
Nairobi
2006
ARVIND MAYARAM
INDIA
WHY IS FDI SO IMPORTANT?
• A few countries -- essentially Japan and Korea -- have been
able to grow rapidly with minimal reliance on FDI.
• Many countries have attempted to imitate the Japanese or
Korean model, but with limited success.
• De facto, most other fast-growing countries have relied heavily
on FDI (for example Chile, China, Malaysia, Singapore, and
Thailand).
• Most astonishingly, Ireland -despite being a relatively
advanced country - has managed to grow at some 8 per cent
per year for most of the 1990s due in large part to effective
attraction and deployment of foreign investment.
• This is not to say that FDI is all it takes to achieve rapid growth,
but it appears that FDI remains a key ingredient.
ODA: NOT SO MUCH
• There is little prospect of increasing ODA levels
anytime soon - declined to $53.7 bn in 2000 from
$60.8bn in the year (1992) of the Rio Summit.
• If every country contributed 0.7 percent of their GNP as
ODA, nearly $160bn would be available.
• Currently very little ODA reaches the poorest countries
- only 0.10 % of the average GNP of OECD DAC
members went to low income countries in 2000 and a
mere 0.05 percent to the least developed countries.
• Notwithstanding the US and EU initiatives to expand
ODA over time, targets are difficult to meet.
ODA-FDI: IMPROVING SYNERGIES
• Declining aid flows: can the difference be
made up by relying on private investment?
• One way forward is to seek to improve the
synergies between ODA and FDI
HOW TO ACHIEVE SYNERGIES
• Carefully targeted development assistance may assist
in leveraging FDI flows and creating a virtous cycle of
increasing savings and investment.
• Most significantly, when ODA is used to buttress or
develop institutions and policies in developing countries
it helps create a favourable environment for domestic
savings, domestic and foreign investment and growth.
• More specifically, ODA funds can be used to support
those areas considered important to investors in
determining investment locations, i.e. PPPs in
infrastructure and human capital improvement.
Global inflows of FDI 1983-2003
by groups of countries (US$ billions)
1600
1400
1200
1000
800
EFFECTIVE ONE STOP SERVICES
600
400
200
0
1983-
1988-
87
93
(A nnl
(A nnl
avg)
avg)
Source: UNCTAD
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
FDI inflows: Africa compared with other regions 1991-2001
(US$ bn)
650
550
450
350
250
150
50
-50
1991
1992
1993
1994
1995
European Union
Latin America and the Caribbean
Africa
Source: UNCTAD
1996
1997
1998
1999
2000
2001
United States
South, East and South-East Asia
6653
South Africa
Morocco
888
201
1196
Algeria
438
1119
Angola
879
Africa: FDI inflows, top 10
economies, 2000 and
2001 (US$ millions)
1104
930
Nigeria
Sudan
2001
2000
2658
574
392
510
Egypt
1235
486
Tunisia
779
Cote d'lvoire
258
255
Mozambique
255
139
Source: UNCTAD
0
1000
2000
3000
4000
5000
6000
7000
Attractiveness for FDI –Ranking of African countries (2000)
1. South Africa
12. Botswana
2. Egypt
13. Angola
3. Morocco
4. Nigeria
14. Zimbabwe
5. Tunisia
15. Tanzania
6. Ghana
16. Mauritius
7. Libyan Arab
Jamahiriya
17. Namibia
8. Cote d’lvoire
18. Ethiopia
9. Algeria
19. Uganda
10. Kenya
11. Mozambique
20. Malawi
Source: UNCTAD/ICC survey conducted in November 1999-January 2000
INVESTMENT
•
Although attracting investment requires multi-
pronged efforts, promotion techniques provide an
important mechanism for communicating all these
efforts to potential investors.
•
The presentation is based on experience of some
of the more successful IPAs from amongst the
developing countries
THREE VARIABLES
For developing competitive
strategies for ‘marketing’ activities,
governments can, to some extent,
manipulate three variables
PRODUCT
PRICE
PROMOTION
IN OTHER WORDS

Product is the fundamental
disadvantages of a location

Price is the cost to the investor of locating and
operating in a location, including tax breaks,
subsidies etc.

Promotion includes activities that disseminate
information, create favorable image and provide
support services
advantages
and
ELEMENTS OF COUNTRY’S ATTRACTIVENESS
• political and economic stability, to provide reasonable
predictability for making business decisions;
• government behaviour that facilitates doing business,
rather than harassing it;
• an FDI legal framework in line with best international
best practice, with security of property and of persons
and enforceability of contracts;
• an enabling environment for domestic market growth,
including adequately developed physical infrastructure
networks and well-trained workers; and
• the availability of all these conditions to all companies
automatically and by law, i.e. rules-based, without a
need for special treatment, particular deals, or
discretionary decisions by either elected officials or civil
servants.
THE THREE Ps
GOVERNMENTS SEEK TO
Attract INVESTMENT through an effective marketing
mix of
strategies
PRODUCT, PROMOTIONAL and PRICING
THEY DO SO BY

Improving
infrastructure,
reducing
procedural
delays, strengthening the adjudicating system,
human resource development etc... ( PRODUCT)

Offering incentives and concessions to off-set the
disadvantages ( PRICE)

Image building, dissemination of information and
complete support services for quick and hassle
free implementation (PROMOTION)
LOCATION (PRODUCT) ATTRACTIVE DUE TO FACTORS
BASIC
* Natural Resources
* Climate
ADVANCE
* Highly Skilled Manpower
* R&D Capabilities
* Port Access
* Modern Communication
Infrastructure
* Unskilled/Semi-skilled
Labor
* Efficient Transport
Services
* Debt Market
* Developed Capital
Market
* Social Infrastructure
GOVERNMENTS
‘INCREASE THE RATE OF UPGRADING THE
ECONOMY BY INCREASING THE RATE AT
WHICH THE QUANTITY AND QUALITY OF
FACTORS IMPROVE’
Interventions are in in creating Advanced Factors
that would give competitive advantage to a
location
THESE INCLUDE

EDUCATION and TRAINING

SCIENCE and TECHNOLOGY

CAPITAL

INFORMATION

DIRECT INCENTIVES

INFRASTRUCTURE
INFRASTRUCTURE
PHYSICAL
SOCIAL
 Telecommunications
 Housing
 Transportation
 Educational Facilities
 Industrial Parks
 Medical Care
 Roads
 Recreational Facilities
 Modern Ports
 Shopping Arcades
 Good Quality Power
 Cultural Activities
PROMOTION: MARKETING A COUNTRY
Information
Image
Activities
Support
Services
IMAGE BUILDING ACTIVITIES INCLUDE
 Advertising
 General Presentations
 Conferences
 Direct Mailing
 Multi-media, CD-ROM
 Home Pages, Interactive Electronic
Data Interchange, Information
Formats
INVESTMENT PROMOTION ACTIVITIES INCLUDE
 Sector/ Product Specific Presentations
 Participation/Organizing EVENTS
 Strategic Alliances With Industrial
Associations, Investor Groups
PROCESS: INVESTOR SUPPORT SERVICES
EFFECTIVE ONE STOP SERVICES
 Time Bound Clearances
 Minimum Interface With individual
officials

Single Agency As Trouble-Shooter
POLICY CONCLUSIONS
• FDI is not a panacea but a valuable supplement
• Incentives cannot be a substitute for an enabling
environment
• Integrity, transparency and accountability - good for FDI,
domestic business and society at large.
• Effective competition on even playing field and IPR
• FDI linkages with local enterprise development but no
performance requirements
• policy coherence across different sectors and levels of
government
POLICY CONCLUSIONS-2
• Result-oriented partnerships with business and civil
society partners
• Advanced regions help less developed ones
• Openness to trade
• Sound environmental and social practices
• Raise the quality of physical, technological and human
resource infrastructure
• Clearly targeted ODA for leveraging FDI
• Enhance policy advocacy function of IPAs
GOOD GOVERNANCE AND TRANSPARENCY
What host countries may do:
• Strengthen efforts to consolidate the rule of law
• Work toward increased openness to foreign trade and
investment
• Enshrine the principle of non-discrimination in national
legislation
• Undertake efforts to put in place, and raise the quality
of, relevant physical and technological infrastructure
• Implement internationally agreed environmental and
core labour standards
• Carefully consider the effects of imposing performance
requirements on foreign investors
• Establish rules to encourage clarity and transparency in
financial reporting
THANK YOU