Much of the focus of this year’s World Economic Forum (WEF) was on debates about artificial intelligence, geopolitics and an impassioned speech by Argentina’s new libertarian president Javier Milei on why the Western world is in danger. 

However, a less captivating, yet consequential, topic also echoed across panels at the annual, elite shindig in the Swiss town of Davos: permitting. Policymakers seeking to attract investment to create jobs and decarbonise their economies should take note.

Slow permitting was a major complaint of several multinational executives discussing barriers to where, and when, they decide to invest. At a time of concerns about shifts in foreign direct investment (FDI) due to industrial policies like the US Inflation Reduction Act (IRA), making permitting processes less cumbersome is a way for locations to differentiate themselves.

“It’s all about speed of execution,” said Brian Moynihan, the CEO of Bank of America, in a panel on how to boost growth in trade and investment. “Governments forget that you can give all the IRA money you want. Without the permitting, it won’t get spent.”

Permitting is the process by which businesses get official authorisation to undertake various aspects of their investment projects. It is a crucial part of governments protecting the public interest by ensuring investors comply with local laws and standards. 

But as companies rush to build out capacity for the green transition, including renewable energy, battery plant and critical mineral projects, stringent and slow government approvals risk slowing the path to decarbonising the global economy.

A mix of factors, including infrastructure, access to talent, energy sources and clustering of companies, are needed to attract green industrial projects. But industry leaders stress that stringent regulations — such as those related to permitting — lead them to invest in locations with simpler regimes. 

Indeed, efficiency of legal and regulatory processes was the fourth-most cited factor by executives in their choices about where to invest in Kearney’s 2023 FDI Confidence Index. Transparency of regulations was among the two most important factors affecting their investment decisions, ahead of incentives. 

BASF, the German chemicals giant that has shifted its investment to China and the US, is a case in point. “It is almost impossible to build a new cluster in Europe,” said Martin Brudermüller, chair of BASF, in a WEF panel on industrial clusters. 

The company has 50,000 pages of documents to deal with for the EU Green Deal, added Mr Brudermüller, which is making it complex for the group to invest in its home region.

Other executives were even more blunt about the impact of slow processes and shifting regulatory regimes on greenfield investment in Europe. “Uncertainty on regulation is killing [investment],” said Jacques Vandermeiren, the CEO of the Port of Antwerp-Bruges, one of Europe’s largest industrial clusters.

“It is becoming increasingly difficult to develop even a well-functioning and powerful industrial cluster [like] the port of Antwerp. The permits [are] killing a business case,” he added.

More opinion on FDI attraction in a competitive world:

• How to attract FDI in an era of high interest rates
• Why geopolitics is now a transformative force
• Is Lord Harrington’s advice to focus on mid-to-large FDI right?

The problem is not isolated to Europe. Permitting delays in the US are a bottleneck in the expansion of its electricity system. And development bankers at Davos were clear about sluggish state bureaucracy stifling investment. “The government has to change its very slow regulation [and] process of permits. It is always a problem for us and companies,” said Nobumitsu Hayashi, the governor of Japan Bank for International Cooperation. In Vietnam, which has attracted significant investment from companies diversifying away from China, it can take “years, not months” to proceed with projects, added Mr Hayashi.

So, in the competitive race for green investment, what are the lessons economic development professionals can learn? They can gain competitive advantage from being faster to accommodate the deployment of capital in their jurisdictions.

Even within the same trading bloc — like the US, Mexico and Canada under the USMCA trade agreement — communities can win investment over rivals by speeding up these processes. This was succinctly summarised by Mr Moynihan of Bank of America. “You can bid against them just by pace. You don’t even have to worry about benefits,” he said, referring to incentives.

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