Transcript The role of investment promotion in FDI atractiveness

Ing. Tomáš Dudáš, PhD.
Introduction
 Investment promotion – the sum of all government
activities with the goal to try to attract foreign direct
investments
The basic types of investment promotion activities
 Main objective:
 to improve a country’s image within the investment
community as a favorable location (image-building
activities)
 to generate FDI directly (investment-generating
activities)
 to provide services to prospective and current investors
(investment service activities)
Tools of image building
 Advertising in the general financial media
 Participating in investment exhibitions
 Advertising in industry or sector specific media
 Conducting general investment missions in other countries
 Conducting seminars on general investment opportunities
Tools of direct FDI generation
 Direct mail or telemarketing campaign
 Industry or sector specific investment missions
abroad
 Industry or sector specific investment seminars
 Engaging in firm-specific research followed by
“sales” presentations
Services to prospective and current investors
 Pre-investment counseling and services
 business matchmaking, domestic market information,
advice on employment conditions, finding suitable sites,
advice on financial services, feasibility studies,
environmental impact studies …
 Post-investment services
 assistance with registration, legal assistance, assistance
with work permits, customs assistance, help with
selecting local personnel…
Investment promotion agencies (IPA)
 Relatively new institutions, but their number was
growing fast in the recent two decades
 Ex. SARIO, Czechinvest, PAIZIZ, Invest in
Germany…
 Today we can find around 160 national IPAs and
approx. 250 regional IPAs
 Usually they are public institutions
Financial incentives
 Fiscal
 the goal is to decrease the level of taxation of the
investor
 Financial
 to goal is to give direct financial aid to the investor
 Other incentives
 usually indirect ways to help the foreign investor
Examples of incentives
 Tax discount or tax holiday
 Subsidies for new workplaces
 Subsidies for training of the new employees
 Subsidized loans to finance the investment
 Subsidized land/free land transfer
 Building of the necessary infrastructure
 Special economic zones
 Industrial parks
…
Investment incentives in Slovakia
 Four types of projects eligible for incentives
 industry
 technological centers
 centers of strategic services
 Investment incentives are region based
 The primary role of the investment incentives should be the
motivation of investors to place their new projects in the so called
disadvantaged localities, i.e. the regions with higher
unemployment, lower infrastructure quality, etc.
Maximum amount of the aid approved by
the EU
The percentage expresses the so called intensity of the aid, i.e. the
maximum proportion of the eligible costs, which may be approved for
the investor in the form of particular investment incentives.
Investment incentives in Slovakia
 Key Slovak legal regulations:
 Act No. 231/1999 Coll. on State Aid
 Act No. 561/2007 Coll. on Investment Aid
 Act No. 595/2003 Coll. on Income Tax
 Act No. 5/2004 Coll. on Employment Services
 Bylaw No. 342/2008 Coll. issuing the investment aid application
form
 Important European regulations:
 Treaty on establishing the European Community
 Regulation (EC) No. 800/2008
 Guidelines of the Commission on National Regional Aid for the Years 2007
2 2013
Industry
 The conditions for the so called industrial investment
projects are the strictest ones
Technological centers
 Basically the technological centers are the establishments in which the
company performs activities leading to the improvement of the
production process and its quality, in other words perform research and
development. But production does not fall within the technological
centre scope of activities.
 The investor must expend at least 1 327 756.75 EUR (approx. 40 mil.
SKK) on the fixed assets acquirement to be allowed to apply for the
State aid concerning the technological centre establishment.
 Similarly as in the case of the industrial projects at least 50% must be
covered by own equity.
 Furthermore the company must employ at least 60% of employees
having university education.
Shared Services Centers
 These are places where the company provides the services with the
high added value supporting the employment of qualified experts,
centers for the development of computer software, customer support
centers and so on as the centers of strategic services. Such centers are
named the „shared services centers“.
 In the case that the investor shall decide to apply for the regional aid for
such kind of a project, it must expend minimum 1 161 787.16 EUR
(approx. 35 mil. SKK) on the fixed assets acquirement, whereas at least
50% must be covered by own equity, and employ at least 30% of
university educated employees.
Large Investment Projects
 The investments with eligible costs exceeding 50 million EUR
constitute a special situation. The European legislative considers such
investments as the so called large projects and determines stricter rules
for them.
 Maximum aid amount = R * (50 + 0.50*B + 0.34*C)
Forms of investment incentives
 Cash grant
 Fax relief
 Contribution to new jobs
 Transfer of the State/municipality property to the
investor at the discounted price
Method and time frame of the
investment aid approval