It is sometimes said that the currency of economic development – and investment attraction – is jobs. In this view, investment promotion agencies (IPAs) exist primarily to help create employment through the investment they attract. The mission statements of most IPAs suggest that job creation remains the primary goal for most of them.
The almost exclusive focus on job creation means that performance measurement and reporting for IPAs have tended to be quite simple. The agency issues an annual press release highlighting its results for the year, invariably expressed in terms of the number of investment projects and the associated employment and capital expenditure. In some cases, a presentation providing a little more detail, such as a breakdown of projects by industry and geographic origin, is also prepared.
A recent study released by FDI Center suggests that most IPAs still report their results this way. A sample of IPA performance reports from around the world showed that the key performance indicators (KPIs) used most frequently by IPAs are the value of the investment, employment and the number of projects.
No longer enough
Other than the methodological flaw of reporting projected (rather than actual) jobs and investment, there are good reasons why this limited type of reporting is no longer sufficient for most agencies.
There are good reasons why this limited [jobs-focused] type of reporting is no longer sufficient for most agencies.
Many IPAs are being asked – or expected – to contribute to a greater number of economic and social objectives, including innovation, digitalisation, regional development, inclusiveness, sustainability and talent attraction. This is part of a broader shift towards the quality of investment, with governments and IPAs around the world increasingly seeking to attract investment that generates a range of positive impacts for their locations. “Quality investment” is difficult to define and means different things to different locations. Depending on the IPA’s goals, it creates the need to use different performance indicators that reflect the wider set of benefits that investment is supposed to generate.
The shift to “quality investment” also means that some IPAs may need to sacrifice quantity for quality and may no longer be able to generate the same level of results as in the past. These IPAs will have to demonstrate to stakeholders why their activities remain relevant and what impact (other than the absolute numbers of projects, jobs and investment) they generate. The importance of demonstrating impact to stakeholders is likely to increase as investment activity slows in response to a challenging economic environment.
In addition to showing impact to stakeholders, the use of a broader set of KPIs can have both internal and promotional advantages. An IPA’s team may feel more motivated to achieve goals that contribute to different areas of society and the economy. At the same time, results can also be used to send a message to potential investors that the IPA (and the location) are committed to generating a wider societal impact.
In many cases, the performance indicators that IPAs use have not caught up with the broader set of objectives that IPAs are being asked to achieve. Traditional performance measures that only reflect the “hard” economic impact of FDI are not sufficient to capture these broader objectives and benefits of attracting investment.
There are notable exceptions to this, and some IPAs around the world are leading the way in using new KPIs to measure their performance in a more encompassing way. Some examples (described in more detail in the study) include:
- CINDE Costa Rica’s reporting on its contribution to the Sustainable Development Goals, including gender equality
- The IDA Ireland’s comprehensive annual reports using a range of indicators, including contribution to sustainability.
- Scottish Development International’s reporting on the environmental impact of investments, including “green jobs” and CO2 emission savings.
- London and Partners’ methodology for a more holistic assessment of the impact of inward investment while being realistic and transparent about the role of the agency in securing it.
Slow to change
Given these examples and the trend towards a broader definition of the impact of investment, why aren’t more IPAs expanding the range of KPIs they use to enhance their reporting?
Why aren’t more IPAs expanding the range of KPIs they use to enhance their reporting?
The main reason is that reporting is complicated. The data needed is usually not readily available and often needs to be gathered through extensive surveys. This can be time-consuming and expensive, and the agencies highlighted above dedicate significant effort and expenditure to gathering and assessing the data for their performance evaluations. Many IPAs do not have the resources required for this and lack the in-house capacity for complex analyses and reporting.
In some cases, IPAs may simply not (yet) see the need for using a broader and more comprehensive set of KPIs. If their stakeholders are still assessing them mainly based on jobs and investment, why bother reporting about anything else?
For those IPAs that are interested in expanding the scope of their performance evaluation and reporting but may not have the extensive resources of larger agencies, here are some potential solutions:
- Try not to measure everything – assessing the impact of investment in areas such as innovation and sustainability is difficult. Rather than trying to measure everything at once, the IPA can start with one dimension that is relatively easy to assess (for example, impact on regional employment and development). Once a methodology for this has been established, the IPA can move on to assessing other dimensions of its work.
- Work with partners to gather data – there are typically numerous organisations in a country responsible for gathering statistics, including other government agencies, social security offices and private sector data providers. The IPA can partner with these organisations to gain access to data that contributes to measuring impact in a more comprehensive way.
- Use universities – if engaging a specialised consulting firm to conduct detailed analyses is too costly, universities can be a useful alternative. The economics and business departments of universities should be willing to conduct more complex statistical analyses for a nominal fee. The methodologies developed can be used by the IPA on an ongoing basis.
- Survey investors – most IPAs conduct some type of regular survey of existing investors. Questions regarding the activities of these investors in areas such as sustainability, local procurement or inclusive employment can be added to these surveys. The surveys can be combined with the IPA’s aftercare activities to achieve more than one goal. Again, engaging universities or students to design and conduct the surveys can represent a lower-cost alternative to using specialised advisory firms.
- Highlight individual projects – if capturing comprehensive data is not possible, individual projects can serve to highlight certain goals that the IPA is trying to achieve. Case studies on investors that have contributed to specific goals such as environmental stewardship, gender equality or backward linkages to local suppliers can demonstrate the contribution made by the IPA and the investment they attract to those goals.
While jobs creation remains the main objective of most IPAs around the world, investment can generate a range of other benefits that are often not easy to capture and convey. Measuring and communicating these benefits will allow IPAs to truly demonstrate the positive impact that they create for their location and make them less susceptible to outside challenges.
Andreas Dressler is the founder and managing director of FDI Center, an advisory firm that assists governments and investment promotion agencies with strategy, performance and capability building, and Location Decisions, a corporate location consulting firm.
This article first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.