Since most of the world has gone into lockdown, projections about the likely economic impact have proliferated. These range from “we’ll be fine by the summer” to “this will be the worst economic crisis since the great depression in the 1930s”. The truth is likely to be somewhere in between these extremes, but with each passing day of economic inactivity the projections become worse.
The economic impact will affect corporate investment, both domestically and internationally. Within the space of two weeks in March, UNCTAD revised its projections for the decline in foreign direct investment (FDI) from an initial forecast of 5 to 15 percent to a more dramatic reduction of 30 to 40 percent. While it is still too early to assess the magnitude of the impact on FDI, there is no doubt that businesses will suffer and that FDI will be hit hard.
What are the implications for investment promotion agencies (IPAs) and economic development organizations (EDOs) whose role is to attract corporate investment to their locations? Many of these agencies are currently fully engaged in responding to events and are playing a valuable part in their governments’ efforts to protect the health and wellbeing of citizens. These activities are by necessity reactive and the future situation is still unclear. However, IPAs and EDOs may want to start thinking about their longer-term investment attraction strategy and how this needs to be adapted – or radically revised – in response to current and future events.
Here are some aspects of your investment attraction strategy that may need to be reviewed.
What role will corporate investment – and FDI in particular – play in your location’s economy? As corporate investment drops, competition for projects will become even more intense and locations will secure less FDI. Some governments may choose to prioritize other areas of economic development, including trade promotion and other measures that benefit domestic companies directly and appear to provide greater returns on public spending. Governments in Europe and other parts of the world have started tightening their foreign direct investment screening procedures and there may be an increase in economic nationalism in some countries. How will these developments impact your ability to attract investment? How can FDI continue to contribute to your location’s economic development and what role will your agency play?
What are your objectives and how should your performance be measured? Whatever your agency’s goals were for this year, you will not be able to meet them. Although stakeholders will understand the reasons for this, it may be time to reconsider how your agency’s performance is evaluated. How relevant are the traditional measures of job creation and capital expenditure? What other benefits of FDI and your agency’s activities should you be measuring and communicating? The search for more meaningful and nuanced performance indicators that truly capture the value of FDI and the performance of your organization needs to be accelerated.
Should you restructure your agency? Now is a good time to re-evaluate how to allocate your agency’s resources and budget. Should you be moving staff from investment attraction into aftercare? Should you invest more into promotion to maintain awareness of your location while travel is restricted? If you have foreign offices or representatives, are they still in the right places? If budget cuts are likely, in which areas can you afford to reduce your activities? While these types of changes can be difficult to implement in some government agencies and may involve tough decisions, it will be important to adapt your agency’s structure to changing circumstances sooner rather than later.
What sectors should you be focusing on? Not all sectors will be affected equally. Some will be devastated and will take years to recover. Other sectors may thrive. The majority will return to some level of normality once global economic activity resumes. How will your target sectors for investment attraction be impacted? Should you be considering different industries or target groups that are more likely to continue investing?
How valuable is your pipeline? Although some projects are moving forward, even companies whose activities and business model have not been too negatively affected are postponing investments due to the general economic uncertainty. It’s worth carefully reviewing your pipeline of opportunities and contacts. Which projects are likely to be cancelled and which ones are merely ‘on hold’? What is the likelihood of these projects moving forward again? Which projects provide the most immediate opportunity? Which relationships should be nurtured? The best way to answer these questions is to speak to decision makers of the companies in your pipeline to determine which opportunities to continue pursuing and which ones to write off.
What channels should you be using to attract investment? There has much talk in recent weeks of the need for new digital approaches to investment attraction. People will start travelling again at some point, trade shows and conferences will be rescheduled, and face-to-face meetings will remain the best approach for business development in most markets. However, investment attraction has long been lagging other areas in the adoption of digital marketing and business development techniques. This is a good time to seriously consider adding smart and effective digital methods to your overall investment attraction approach.
What support should you provide investors and what will it take to win projects? Corporate investors will still look for the same qualities in a location as before. However, factors related to crisis resilience, supply chain security and the government’s support for business are already playing an increasingly important role in corporate location decisions. Are your value propositions and services aligned to what investors are looking for and the type of support they need? As competition for projects becomes more intense, so too will the methods (including the use of incentives) used by IPAs and EDOs to win projects. How aggressive is your agency willing – and able – to be to compete?
Things may be in flux, but it is not too early to evaluate your strategy
These are just some of the elements of an investment attraction strategy that may need to be reviewed as events unfold. Although it is difficult to make plans while the situation is still in flux, there will be serious questions asked of IPAs and EDOs in the months to come. Anticipating some of these questions and testing the robustness of your strategy will help position your agency for the challenging times ahead.