More than 70% of investment promotion agencies may be missing out on FDI projects knocking their doors, according to research from the World Bank.

Global Investment Promotion Benchmarking 2009 (GIPB 2009), a report by the Investment Climate Advisory Services of the World Bank Group, examined the ability of national investment promotion agencies (IPAs) in 181 countries to influence foreign investors’ site-selection process. The report finds that more than 70% of IPAs may miss out on investment by failing to provide accurate and timely information to potential investors.

GIPB 2009 assesses the response of IPAs to two enquiries by prospective foreign investors seeking country and sector information. According to the report, only 53 IPAs responded to both project enquiries. Most strikingly, only 10 out of 181 IPAs followed up with potential investors to try to secure the projects by converting this initial interest into a serious lead.

“If country information is hard to obtain, investors will simply go elsewhere,” says Cecilia Sager, investment generation manager at Investment Climate Advisory Services. She also notes that in the global slowdown, FDI offers prospects for growth and employment. Attracting investment, however, requires professional facilitation which, unfortunately, many countries do not provide. In the current slowdown, facilitation, servicing and aftercare should be at the core of every IPA’s work plan. Making sure that investors retain the IPA’s country in the shortlist during the site selection process lies at the core of investment promotion.

GIPB 2009 shows that professional facilitation efforts do pay off. For example, Sitel, a global leader in business service outsourcing, contacted ProNicaragua to request information during the site-selection process. ProNicaragua provided detailed information packages that helped Sitel choose Nicaragua for its $5m investment project, which created 1000 jobs.

GIPB assesses IPAs’ ability to meet foreign investors’ information needs during the site-selection process in two ways: the extent to which IPAs’ websites offer a business-support gateway for prospective foreign investors; and IPAs’ capacity to deliver information required by prospective foreign investors at the long-listing stage of a site-selection process.

IPAs put to the test

Using a ‘mystery shopper’ methodology, GIPB consultants posed as a foreign investor and contacted each IPA with an enquiry related to a beverage manufacturing project (with a research and development component), and a second one regarding a software development centre. The enquiries were designed to assess the IPAs’ ability to respond to information requests in a professional and appropriate manner that would motivate the investor to engage further with the IPA and ultimately invest in the location. Assessing an IPA’s enquiry-handling capability also sheds light on its core functions: the extent to which its staff understands its market, has carried out research on its own location and has the requisite project management skills, knowledge, training and marketing capability to service investors effectively.

GIPB 2009 is the second in a series of biennial surveys. In 2006, GIPB examined 96 IPAs. Those IPAs surveyed both in 2006 and in 2008 can track the evolution of their performance over time. This is, in fact, one of the main purposes behind GIPB: to allow IPAs to benchmark their performance and set milestones for improvement. The next survey will take place in 2010.

The findings

While only two non-OECD countries (Latvia and Costa Rica) were among the top 10, the top 25 IPAs had representatives from each income category and region, except for the low-income category and the Middle East and north Africa region. IPAs in Latin America are rapidly approaching OECD standards, and so are IPAs in eastern Europe. Furthermore, Asia overall shows improvement averages of 25% since 2006, which reveals growing competitiveness.

The Austrian Business Agency emerged as number one worldwide. Middle-income countries are showing immense progress in competing for mobile investment, particularly Brazil, Botswana, Colombia, Lithuania and Turkey. Lower middle-income countries such as Honduras and Sri Lanka, which offer strong facilitation services, provide evidence that a country’s income is not linked to performance. An IPA’s budget may not be an excuse for poor facilitation, as it is the most cost-effective investment promotion activity.

In addition, a small number of low-income countries, such as Senegal and Ghana, outperformed some OECD economies. Their IPAs are not yet best practice, but their capability is growing. Today, Africa does not need to look far away for best practice: Mauritius is a world-class IPA with consistently robust performance.

Facilitation tops agenda

According to a survey of executives with direct site-selection responsibilities for large US companies (DCI, July 28, 2008. A View from Corporate America: Winning Strategies in Economic Development Marketing), about 92% of companies would contact the local IPA during the site-­selection process. Thus, it seems that the role of the IPA in facilitation remains extremely relevant.

Moreover, as the pool of FDI shrinks, there will be more competition for fewer projects. The ability of IPAs to influence investment decisions by providing timely and relevant country and sector information is more crucial than ever.

IPAs would benefit from rethinking their strategies to maintain their relevance in the current FDI context, including shifting focus in the short and medium term from outreach to offering more professional facilitation services to any new opportunities knocking on their doors, as well as offering aftercare services to existing businesses to ensure that jobs will not be lost.

The effective provision of relevant information can lessen investors’ perceptions of risk and their transaction costs during the site-­selection process, thereby ­making the IPA’s location more competitive.

Leading by example

The case of Ecuador illustrates well how strategic planning can improve facilitation. In GIPB 2009, Ecuador was the 12th performer worldwide in enquiry handling. Corpei, Ecuador’s national IPA, moved from the middle ranks toward best practice, increasing its overall performance by 31 points to final score of 71%.

Dealing with political instability and an uncertain image abroad, Corpei decided to focus on existing investors and providing world-class services to interested investors. Implemented by a small but dedicated team, the strategy bore much fruit.

In 2008, with a strong capacity to react to investors’ interest and a new budget, the proactive programme ‘Invest in Ecuador’ was put in place. This seems logical: how could IPAs justify a proactive promotion budget if they are not able to grab the opportunities that knock on their doors?

The full GIPB 2009 Summary Report can be downloaded from www.globalinvestmentpromotion.com