New forms of FDI demand new approaches by governments seeking to attract inward investment: this was the consensus at the Annual Investment Meeting in Dubai, which took place on April 10 to 13.
Delegates at the events were largely of the opinion that with big, traditional greenfield investment projects having struggled to reach pre-crisis levels and many companies in a risk-averse mood, FDI promotion strategies must adapt to the new paradigm.
Greenfield investment involves the most commitment by companies and is the most coveted by economic developers, but it is also the riskiest form of investment, according to Dr Douglas van den Berghe, CEO of Investment Consulting Associates. Cost differentials between emerging markets and developed markets have been reduced while risks have increased. “There is a lower cost differential but higher risk differential. This is one possible reason for the decreased appetite [from] companies for FDI,” he said.
Meanwhile, drivers of investment have evolved beyond simply seeking access to markets and customers with a greater emphasis being placed on regulation, skills and workforce, infrastructure and connectivity, and technological innovation. “The regulatory environment has become more important but at the same time the stability of regulation has become more unpredictable,” said Mr van den Berghe, adding that there has been a related increase in legal disputes between investors and host countries. “There is an opportunity to attract these new forms of investment and to develop stronger regulatory frameworks underpinning the attractiveness of different business environments,” he said.
There is an imbalance whereby the traditional FDI mechanism – looking for big-ticket FDI projects – no longer works, said Geoffrey White, CEO of Agility Africa, a logistics firm. “There are huge opportunities to develop SMEs throughout the emerging markets, for example,” he said.
“The key factor is knowledge. FDI today is about more than capital, it is about how to make new products and services,” said Roberto Echandi, global lead, investment policy and promotion, as the trade and competitiveness global practice of the World Bank. He advised that governments focus on skills and enabling mobility of talent through sensible visa procedures and immigration policies; and that they work hard to retain as well as attract FDI. “In developing countries a lot of investors leave because of regulatory problems,” he added.
In a ministerial panel, government ministers said they are up for the challenge. The countries represented on the panel are at different stages of development and sit on different parts of the global FDI value chain, varying from Cuba, which is new to the FDI promotion game and is looking for foreign capital of all kinds as it seeks to develop its economy in the post-sanctions era, to Portugal, a highly developed western European economy that is now focusing mostly on technology and knowledge sectors.
In between are the African economies of Mauritania and Namibia, which have been courting investment for many years but are still focusing heavily on primary sectors, manufacturing and processing, although Namibia is also placing a new focus on SME development; Nicaragua, which is investing heavily in infrastructure in order to exploit new shipping lanes and hopes to become a logistics hub for Latin America; and Bulgaria, which is an EU country with strengths in IT outsourcing but which wants to grow these capabilities while developing its energy sector from traditional energy to renewables.
But what all the ministers agreed on was the continued importance of greenfield FDI in realising their economic goals and the need to attract new and varied types of investment as well as supporting SMEs and start-ups. All stressed the importance of the regulatory environment and having the right legislative framework in place to attract investment. Facilitating the approvals processes through one-stop shops and the single-window model were agreed to be of high importance in both preventing corruption and speeding up permit procedures. Also important, it was agreed, is recognising the different needs that small investors, start-ups and entrepreneurs have from the traditional greenfield investors that investment agencies have typically been focused on serving. The new types of FDI demand new and better levels of co-operation and support from government agencies.
In opening the conference, UAE minister of economy Sultan Bin Saeed Al Mansouri said: “The world today is faced with an ever-changing global investment map. The increase in FDI flows last year was largely due to crossborder M&A with a very small contribution from greenfield FDI… The theme of the conference stems from the realisation that greenfield FDI is only one form of investment.”