Governments and investment promotion agencies (IPAs) worldwide have been stressing the significance of “quality” investment amid global challenges. Both developing and developed worlds want to attract “quality” investment, and yet the definition of “quality” is not straightforward and it is unclear how to measure successful investments.
Andreas Dressler, managing director of Berlin-based consultancy FDI Center, tells fDi about the challenges involved in measuring “quality” investment, and how IPAs have changed connection with authority in recent years.
Q: Could you comment on the recent emphasis on “quality” investment?
A: The topic itself is not new, but it's really gained in visibility during the pandemic. Many agencies who in the past were perhaps not too concerned about the type of investment that they attracted, as long as it created jobs and allowed them to meet their goals every year, are now placing emphasis on this quality aspect. [...] It's something that over the last 12 to 24 months, I've started to see everywhere really in the world. For example, here in western Europe, we have started to question what we want FDI to do for us in times where we're still at full employment, we don't have as much industrial land as we used to in the past, we are possibly facing energy shortages. In emerging economies, they do not want any types of investment based on the premise that FDI is good, but want to be selective in order to contribute to their development plans. So attracting “quality” investment is at the top of promotion agencies and government agendas at the moment globally.
Q: To what extent do you see the metrics of success for IPA evolving based on the fact that there are less jobs created by innovative industries?
A: The number of jobs per project has fallen, but metrics and the key performance indicators are not catching up quickly with reality. The majority of IPAs still look at the number of jobs, the amount of investments they bring in, and to a lesser extent the number of projects. Jobs are a political expedient and have always been the currency of investment promotion, this is how success is measured. [...] Having said that, there are interesting initiatives to measure the impact of FDI in a more sophisticated way yet they are not so good that they can be replicated everywhere. [...] How do we measure the impact of an investment? It can probably be done at a company, project level. But to do that at a macro level for all the FDI coming into a country is very complex and doesn't lend itself well to political messages. In this sense, the amount of jobs created is the typical and easiest way to see the impact of the FDI.
Q: How does the national development plans and priorities context play a role in defining “quality” impact of FDI?
A: The national development plans and priorities are key to this “quality” investment. In the past, IPAs could operate at arm’s length, not directly contributing to the national development priorities. However, this has changed markedly over the last two years. There has been a convergence of national development plans and IPA strategies to the extent where IPAs try to mirror the national development strategies in their investment attraction strategies closely. It reflects greater emphasis from the governments on attraction which is a big part of their growth and recovery strategies. Also, IPAs have faced scrutiny so they can’t avoid not being aligned with their national development strategy.
Q. There are different models of governance structure of IPAs. Which one could guarantee a broader space for IPAs to have a longer term chance to implement a strategy?
A: Private sector oriented models have greater autonomy because they are less open to influence from outside. They don’t serve short-term political priorities and can develop longer term period strategies. To take the US agencies as an example, they implement 10 years strategy implementation effectively, being entirely privately funded. However, it does not mean this model suits every IPA. There are IPAs in developing countries that are not empowered to help investors facing obstacles as their governments don’t deem agencies important. They do not have leverage to do anything about this. If IPAs were aligned with the governments, it would be easier to obtain more authority to affect projects. On the flipside, it would have less autonomy. Therefore, it can be said there is a trade-off.
To access the full Next FDI interview with Andreas Dressler, follow this link.