lessons in attracting fdi : hans anand beck is the world bank country economist for timor leste
TRANSCRIPT
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Hans Beck, World Bank Country Economist, Timor-Leste
ATTRACTING FDI - INTERNATIONAL
EXPERIENCE P R E S E N TATI O N AT P R E S I DE N T ’ S S E M I N A R S E R I E S , D I L I , 7 M A RC H 2 01 3
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What is FDI? What are the global trends in FDI? Who has done well in attracting FDI? Why have they done well?- what do
investors look for? Role for Government?
OUTLINE
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1)FDI is an excellent way to finance development. But it is not a silver bullet.
• Diversified financing strategy. • Not all FDI is good
2)There are a many motivations for FDI 3)A good investment climate is a necessary, but
not sufficient condition for attracting FDI.
TAKEAWAYS
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Foreign direct investment: The net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. Distinct from Portfolio Investment. (SNA 2008)
WHAT IS FDI?
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Global FDI in 2011 at $1 .5 t r i l l ion
FDI inflows rose 16%, but remained 23% below their 2007 peak
Developing and transition economies respectively accounted for 45% and 6% of global FDI
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GLOBAL TRENDS IN FDI - 2011
Source: World Investment Report 2012, United Nations Conference on Trade and Development
FDI inflows, global and by groups of economies, 1995-2011 (Billions of dollars)
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The Balance of Payments (BoP)
TIMOR-LESTE NOW MEASURES FDI
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Countries that have done well in attracting FDI
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Examples are Singapore, the UK, US, and Ireland.
But many other factors including market size, political stability, quality, level of economic development, are likely to better explain the relationship
SOME RELATIONSHIP BETWEEN GOOD POLICIES AND FDI.
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1. Global Image and Reputation 2. Good investment Climate 3. Effective National Investment Framework 4. Government institutions pulling together in
a coordinated fashion 5. Effective investment institutions that
investors can trust 6. Proactive Sector-Focused Investment
Promotion Efforts
WHAT DO THEY HAVE IN COMMON?
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WORLD BANK “INVESTING ACROSS BORDERS” SUGGEST HOW COUNTRIES CAN IMPROVE THEIR FDI COMPETITIVENESS. (HTTP://IAB.WORLDBANK.ORG)
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ATTRACTIVE DESTINATIONS SEEK TO DELIVER WHAT MOTIVATES INVESTORS
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WHAT GENERALLY MOTIVATES INVESTORS?
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WHAT GENERALLY MOTIVATES INVESTORS?
Deloitte & Touche
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INVESTOR DECISION DRIVERS VARY BY SECTOR, COMPANY AND CONDITIONS
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AND ATTRACTIVE DESTINATIONS ARE PROACTIVE, AND STRATEGIC – The Investment Promotion Cycle
Policy Input
Investment Climate
Systematic Feedback
Aftercare / Investor Development
Investor Servicing
Formulating Development Package
Lead / Investment Generation
& branding
Image Building
Strategic investment promotion is the
process of attracting new foreign and mobile
domestic investment through improvements
in the investment climate and by
marketing a location’s potential to private
investors
• Targeting competitive sectors/ opportunities
• Proactive promotion and facilitation
Effective promotion requires commitment and proactive effort Investment will not “just come”
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A FRAMEWORK FOR EFFECTIVE INVESTMENT PROMOTION
Improved Investment climate
Improved Investor Services
FDI friendly policies
Investment
Jobs
Feedback Loop
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Government
Sets in place policies to create a positive
investment climate
Sets an economic development strategy
and develops underlying competitiveness
Conducts investment promotion and engages
stakeholders
Stimulating Private
investment
The Government & Strategic Investment Promotion
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FDI Strategy
Investment Promotion
Plan
Target sectors
Institutional Arrangements
Infrastructure
Labor Force Skills
Investment Regulation
Investor facilitation
Investor Aftercare
Policy Advocacy
Investment Generation
Admin. Efficiency
Government
Lead Investment Promotion
Intermediary
Investment Promotion Strategy
Investment Law and
Regulations
LINKING FDI & INVESTMENT PROMOTION STRATEGIES
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Is Investment Promotion important? Yes, studies have shown that
there are positive correlations between Investment Promotion
activities and net investment. (Wells and Wint, 1990; Austrade 1996;
Wells, 1999; Morisset, 2004; Jovorcik and Harding – Oxford
University 2011))
Servicing investors’ information needs
Strengthening a location’s image
Targeting and generating investment
Advocating for policy reform for a better business enabling environment
Role of Investment Promotion
A recent University of Oxford study has shown that : • $1 spent on investment
promotion increases FDI inflows by $189
• $78 dollars spent on investment promotion creates one additional job by a foreign affiliate.
Torfinn Harding and Beata S. Javorcik, “Roll out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows,” The Economic Journal, vol. 121, issue 557 (December 2011).
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ADDITIONAL SLIDES
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FOREIGN OWNERSHIP RESTRICTIONS
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THE COSTA RICA INTEL CASE STUDY
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COSTA RICA - 1990S - FDI FALLING AS APPAREL SECTOR LOST STEAM
FDI to Costa Rica was falling as Apparel lost
steam due to increased number of competitors
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Potential success LOW
Impact Electric Compo-nents
Medical Devices ?
HIGH
HIGH
Agro-industry
Apparel
Source: Ansoff, Porter, Infinitum
COSTA RICA - CHOOSING FDI SECTORS
Target Sector & Segments
Congruent with country’s SWOT
PRO-ACTIVE REACTIVE
“High” technology Electronic Compo-nents
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COSTA RICA – INVESTMENT PROPOSITION
Costa Rica Educated Labor Force
Reasonable Costs Incipient base in
electronic industry
CINDE Focused promotion
an facilitation Good practices
Overseas office in New York
Competitiveness
Lower costs Proximity to big
markets Not proven, emergent
Electronic Components
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CINDE NY
Ministry of Foreign Trade
Pres
iden
t Jo
se M
aria
Fig
uere
s
ITCR National Learning
Institute
I.C.E. Power and
Telecommunications
Ministry of Public Works And Transport.
Ministry of Education
Ministry of Finance
Ministry of Science and Technology
Ministry of Environment And Energy
Dire
ct In
volv
emen
t
Source: “Attracting High Technology Investment” Debora Spar-Harvard Business School-IFC-World Bank
CINDE CR
COSTA RICA’S TEAM TO LAND INTEL
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WHY DIDN’T INTEL DROP COSTA RICA IN THE PROCESS?
Making INTEL know they were wanted Impressing INTEL at every step of the decision making process Responding to INTEL’s requirements in a fast, highly
professional manner Being transparent – from the very first contact Maintaining confidentiality of the project, only shared with those
who needed to know in the government. The press was fooled, then alerted NOT to disclose the news before INTEL made it of ficial.
Knowing their customer - Researching INTEL and transferring this knowledge to all involved
Consistency of approach and partnering at all levels of government
Commitment at the highest level possible - The President Coordinating across multiple institutions to deliver against very
aggressive deadlines and high standards
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FDI INFLOWS TO COSTA RICA 1980-2005
Intel: catalyzer for FDI in Costa Rica
Source: Infinitum, BCCR, Intel
Intel construction started
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In 1996, Intel announced decision to construct a $300 million semiconductor
assembly and test plant in Costa Rica.
2,500 direct jobs Doubled Costa Rica’s Exports
***** By 2005 Intel had invested $770 million
in Costa Rica