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FDI

How to increase investment in the Middle East and North Africa

The importance of investment promotion: FDI in Middle East and North Africa countries like Morocco could help create jobs for its citizens.

In light of recent political and social unrest in the region, foreign investors are taking a “wait-and-see” attitude to projects in the Middle East and North Africa. For the region’s investment promoters, this demands better, more proactive performance than in the past. Fortunately, although much remains to be done, the investment agencies of the 19 MENA governments are, as a group, off to a good start, according to a World Bank Group report released today.

Global Investment Promotion Best Practices 2012: Seizing the Potential for Better Investment Facilitation in the MENA Region reports on the ability of investment-promoting institutions (IPIs) in 189 countries to handle investor inquiries and provide investors with quality business information through their Web sites. It shows that the MENA region was the only one in the world to achieve significant improvement since the last edition of GIPB in 2009, with the IPIs of Morocco and Yemen among the world's three most improved.

Want to sell your country to investors? Answer the phone!

When investors think about entering new locations their biggest need—and biggest challenge—is often how to access the information they need to help them make decisions. Reliable information—especially in emerging markets—helps to reduce investor perceptions of risk in an unknown location and reduces the transaction costs of establishing in a new market. 

Missed calls are missed opportunities for investment. (Credit: Johan Koolwaaij, Flickr Creative Commons)

Moreover, you would think government investment promotion intermediaries (IPIs) should be keener than ever to make as much effort as possible to attract new investors in light of the cut-throat competition for lower levels of FDI since the crisis. Wouldn’t you? Well, it would seem like they aren’t. The World Bank Group's Global Investment Promotion Best practices 2012 survey (GIPB 2012) found that, worldwide, the responsiveness of IPIs to investor inquiries is shockingly low-with 80% of IPIs not even responding to sector-specific investor inquiries.

FDI in Ireland: A Reason for Optimism?

John Anderson's picture

On a recent trip to Ireland, stories about the impact of the continuing economic crisis were abundant. Newspapers ran stories about the substantial loss of wealth and purchasing power, such as the increase in 'negative equity' as the value of homes owned by the middle class fell significantly below their mortgages. Cab drivers explained how jobs had been shed throughout the economy, and bemoaned the resulting rise in the number of drivers and increased competition for fares. The reality of the recession and fiscal collapse following the banking crisis of late 2008 was clear.

However, anecdotal evidence about a different aspect of Irish finance – foreign direct investment – suggested a more positive story. I walked through one neighborhood in Dublin that houses the European headquarters of Google, Facebook, and LinkedIn. The latter two were established after the onset of the economic crisis, and Google is in the process of expanding its presence in Dublin. Lawyers at large corporate law firms were excited to discuss FDI, citing it as a key driver of Ireland’s future growth. One firm even maintains a FDI index that highlights large inflows and the positive perception of Ireland as a destination for US investment.

Might FDI in Ireland be the best indicator to consider the strength of the economic fundamentals that enable long-term growth? Ireland has historically benefitted from large inflows of FDI relative to its size. And despite the recent economic crisis, these inflows have largely continued.

Over the past 10 years, inflows of FDI into Ireland tend to be substantially higher as a percentage of GDP than inflows into other OECD economies (see Figure 1). In 2009 and 2010, the two years immediately following the banking collapse, Ireland attracted three to four times more FDI proportionately than other OECD economies. These inflows were not just large in relative terms – they were equivalent to 11.7% of GDP in 2009 and 12.9% in 2010. The negative inflows in 2005 and 2008 do indicate that more money was disinvested out of Ireland than newly invested in the economy those years. However, such outflows are mostly loans or dividend payments from foreign-owned firms in Ireland to their affiliates abroad, at least some of which were likely caused by a 2004 change in the US tax rate on foreign profits.

Figure 1: Net inflows of FDI as percentage of GDP, Ireland vs OECD
 
Source: UNCTAD and author’s calculations

Investment Promotion with Impact: The Case of Invest in Bogota

Over the last two decades the number of investment promotion agencies (IPAs) has mushroomed from only a few dozen in the early 1980s to roughly 250 agencies worldwide today.  Despite this growth, relatively little attention has been paid towards whether or not investment promotion agencies actually have an impact on the growth in FDI to a location. 

Figure 1: Bogota, Colombia # of inbound FDI projects (by quarter) between 2003-2011

 Source: fDi Markets Database, Authors Calculations

FDI is a global force, but is it a force for good?

Over the past decade foreign direct investment (FDI) has become a major force in developing and transition economies. In 2010 the volume of FDI to developing and transition economies for the first time exceeded the FDI to rich economies. In a speech on Democratizing Development Economics delivered at Georgetown University last September, World Bank President Robert Zoellick pointed out that “In the 2000s, Foreign Direct Investment (FDI) inflows were the single biggest source of capital for developing countries and a critical input for technology transfer in developing country firms.”

Figure 1: Comparison of Outbound FDI vs. Official Development Assistance (ODA) from Development Assistance Committee (DAC) countries in 2009 (US$ billions)

Source: OECD, UNCTAD

Outbound FDI: The emergence of Chinese companies on the global scene

Few would dispute China’s importance to the world economy today; from small villages to large cities, its presence is now felt almost everywhere. The Economist recently went so far as to call China “the indispensable economy,” reporting that more and more multinational companies are realizing an increased share of their revenues from inside Chinese borders.

Measuring transaction costs one charitable donation at a time

Mohammad Amin's picture

A concerted effort is being made by institutions like the World Bank to quantify various types of transaction costs incurred by businesses (Doing Business, Enterprise Surveys). The rationale for focusing on transaction costs (and reducing them) is usually couched in mainstream economic concerns. That is, in an attempt to increase growth rate of GDP per capita, create jobs, reduce poverty, and so on.

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