Quality FDI projects and how to competitively attract them were the underlying topics of our “Quality FDI: Attracting Meaningful Investments for Economic Growth” panel discussion at AIM Global held in Abu Dhabi in May this year. The panel was moderated by FDI Center’s Managing Director Andreas Dressler and comprised of senior investment leaders such as Vahan Kerobyan (Armenia’s Minister of Economy) and investment promotion agency (IPA) CEOs Nangula Nelulu Uaandja (NIPDB), Mikheil Khidureli (Enterprise Georgia), and Hossam Heiba (GAFI) as well as board member Karl Tabbakh (Invest Canada) and private sector representative Mario Al-Jebouri (BCGE). The main takeaways from this panel of highly distinguished speakers are as follows:
No one definition fits all for quality FDI
Job creation, GDP growth or sustainable development: the definition of ‘quality FDI’ differed widely between panellists, producing no singular definition. However, all panellists unanimously regarded ‘FDI that is aligned with the IPA’s target sectors and conducive to achieving internal goals and KPIs’ as quality FDI. A common quality FDI sector on most government agendas is renewable energy. Most regions have commitments to reaching net zero emissions by 2030. Therefore, any investment that supports the development of renewable energy regardless of its position in the value chain is regarded as quality FDI.
FDI that doesn’t necessarily contribute to GDP growth can still be quality FDI
Even within the same country, some regions may have very different definitions of quality FDI depending on their own economic and social goals. Thus, a national IPA might want to attract different quality FDI projects than a city IPA. However, this doesn’t mean that their investment attraction efforts are counteractive. For example, Canada’s approach is to target investment that has the potential for a multiplier effect, whereby investors set up shop, expand and reinvest – or as Karl Tabbakh calls it “investment that really moves the needle”. However, this also includes investment that supports the smaller communities, where the investment may not move the needle on Canada’s GDP but still creates substantial benefits for the residents.
Sectors require tailored targeting
To successfully attract quality FDI, the methods and policy levers will need to reflect the type of investment being pursued. IPAs need to keep an eye on what other agencies are offering to companies in similar target sectors to remain competitive. Regions should be proactive by approaching companies that are looking to invest or expand with a value proposition that fits their needs. For example, Enterprise Georgia monitors incentives offered around the world so that they can anticipate and match their competitors’ offerings. Their latest incentive is an FDI grant program, where companies in their quality sectors can obtain a 50% cash-back on their investment, which has proved successful. Understanding the conditions an investor needs to thrive and competently offering that will be key in not only attracting but also retaining investment.
Quality investment also means retaining quality investors
Quality investment can also come in the form of retention and ensuring conditions that encourage quality investors to reinvest. IPAs can leverage the contacts they have made to one group of investors to try to move up the value chain. For Namibia, quality refers to the type of company investing. The NIPDB makes a conscious effort to identify and remove constraints in existing sectors as part of the aftercare process to increase the likelihood of reinvestment. Meanwhile, ease of doing business informs Egypt’s efforts to secure and retain quality FDI projects in the country. This means pushing technological advancement forward in investment implementation and aftercare and is witnessed in the digitalization of government services.
Setting realistic goals
Aside from quality FDI being tied to target sectors, the panellists further highlighted that FDI, which aligns with the mission and vision of the organization and brings technological advancement, diversity, and prosperity to the economy, is regarded as even higher calibre quality FDI. Furthermore, while it is good to be aspirational, the type of investment being sought should be realistic and reflect the investment conditions of the location. Otherwise, attraction efforts are unlikely to reap any tangible investments. Depending on the sector, IPAs may set long-term goals for attracting quality FDI, as investment at the lower end of the value chain may lead to vertical expansion projects over time, if the investor receives quality aftercare services and a supportive environment.