Direct and indirect contributions of IPAs
Investment promotion agencies (IPAs) can contribute a tremendous amount to the society and the location they represent. Besides their core mandate and KPI of attracting capital and creating employment, they are increasingly being asked to contribute to a wider range of economic and social objectives, including innovation, digitalisation, regional development, inclusiveness, sustainability and talent attraction.
Yet in most of the IPAs around the world, the number of jobs created as a result of foreign direct investment is the main KPI used to measure their impact. A recent study released by FDI Center reviewed a sample of IPA performance reports from around the world. The study showed that the KPIs used most frequently by IPAs are the value of the investment, creation of employment and the number of projects.
However, the knock-on positive effects of FDI include indirect employment, exports, taxes, training, opportunities for local businesses and many more. To not report on a broader range of indicators is to miss an opportunity to truly capture an IPA’s wider impact and value added.
You cannot track the progress what you do not measure
Ideally, each of an IPA’s key goals should be associated with at least one measurable objective. In that way, IPAs can assess their performance relative to their specific objectives, make necessary adjustments when progress is not being made and inform future resource allocation and strategic decisions at management level.
Furthermore, measuring and evaluating KPIs also holds the IPA accountable to public stakeholders. It enables the IPA to display a clear track record of its accomplishments and attests to the return on investment of public resources. However, monitoring and evaluation is not only limited to demonstrating cost-effectiveness. Including indicators that measure positive spill over effects on the economy and their contribution to sustainable development goals (SDGs) allows IPAs to give an more complete view of their economic and societal impact to relevant stakeholders as well as the public.
Taking a long-term perspective allows for the promotion of wider societal benefits. As the shift from quantity to quality investment is underway, benefits of quality FDI often reveal themselves in the long run. These are exhibited in the forms of an ongoing increase in environmental protection, regional development, knowledge creation and technology transfer rather than the short-term benefit of job creation. Since quality investment does not usually generate the same high number of jobs, IPAs may be unable to deliver the same level of results as they did in the past. Therefore, in order to demonstrate to stakeholders that their activities remain relevant, IPAs will have to look for other measures to demonstrate their impact. This becomes increasingly important in challenging economic times, when the focus on the contribution of IPAs becomes sharper.
Currently, according to the OECD, only 16% of OECD IPAs measure and report their contribution to the SDGs. The SDGs that most IPAs contribute to are: decent work and economic growth (goal 8), industry, innovation and infrastructure (goal 9), and affordable and clean energy (goal 7).
Best practice examples
One example of an IPA who that extensively using KPIs on their annual progress and contribution to the SDGs is IDA Ireland. Their reporting includes the following:
- The number of jobs, employment type and female employment;
- Detailed data on companies’ expenditure, including salaries and domestically sourced inputs;
- Performance of assisted companies in sales, exporting, and value added.
Data availability is often the most common issue when trying to accurately measure and evaluate an IPA’s performance and collecting the data can be costly for an IPA. However, IDA Ireland has been able to overcome this by collaborating with the Department for Enterprise, Trade and Employment (DETE), which collects data from foreign companies using surveys to evaluate the impact on the Irish economy. Forming partnerships with other governmental organizations can be the quickest and most cost-effective way to obtain verified data.
This insights piece is derived from findings contained with our report. To learn more about performance evaluation for investment promotion and other best practice examples, read the full report, Measuring Impact: Key Performance Indicators in FDI Attraction on our website.