Strengthening Service Delivery of Investment ... The rise in prominence of foreign direct investment

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  • Strengthening Service Delivery of Investment Promotion Agencies IN FOCUS

    FINANCE, COMPETITIVENESS & INNOVATION

    INVESTMENT PROMOTION FOR IMPACT

    The Comprehensive Investor Services Framework Armando Heilbron and Yago Aranda-Larrey

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  • © 2020 The World Bank Group

    1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved.

    This volume is a product of the staff of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non- commercial purposes.

    The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work.

    Rights and Permissions

    The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly.

    All queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org.

    Armando Heilbron (aheilbron@ifc.org) is the Investment Promotion Workstream Leader in the Investment Climate Unit of the Finance, Competitiveness and Innovation Global Practice of the World Bank Group.

    Yago Aranda-Larrey (yarandalarrey@worldbank.org) is a Private Sector Specialist within the same unit and global practice.

    The authors would like to thank Alex Sanchiz for his significant contributions, and Wim Douw, Peter Kusek, Roy Nelson, Ivan Nimac, and Dushyant Thakor for providing valuable peer-review comments. They also extend a sincere appreciation to senior executives at several leading IPAs who willingly participated in related research to produce this report. Lastly, thanks to Linda Stringer and Lucy Williams of Publications Professionals LLC for their editing services and to Aichin Lim Jones and Amy Quach for design and production services.

    Photo Credits: World Bank Photo Library and Shutterstock.com

  • | I

    Table of Contents

    INTRODUCTION 1

    RATIONALE 2

    UNDERSTANDING THE INVESTMENT LIFE CYCLE 4

    SERVICING INVESTORS ACROSS THE LIFE CYCLE 5

    DEFINING THE FOUR CATEGORIES OF SERVICES PROVIDED BY IPAS 5

    MARKETING SERVICES 5

    INFORMATION SERVICES 7

    ASSISTANCE SERVICES 8

    ADVOCACY SERVICES 8

    CONCLUSIONS 9

    REFERENCES 11

    ANNEX 1: THE CISF MENU 13

    STRENGTHENING SERVICE DELIVERY OF INVESTMENT PROMOTION AGENCIES

  • SUPPORTING ENTREPRENEURS AT THE LOCAL LEVEL: THE EFFECT OF ACCELERATORS AND MENTORS ON EARLY-STAGE FIRMSII |

  • | 1STRENGTHENING SERVICE DELIVERY OF INVESTMENT PROMOTION AGENCIES

    Research shows that investment promotion agencies (IPAs) may be the best public institutions to meet government objectives for attracting, establishing, retaining, expanding, and linking productive private investment. As part of this, IPAs need to provide relevant, high-quality services to investors at different stages of the investment life cycle. Informed by its research and experience in global operations, the World Bank Group introduces the Comprehensive Investor Services Framework (CISF), a catalog of specific services to meet investor needs. IPAs can use this investor-centric framework to design service offerings in line with their strategic focus and promotion capacity.1

    Introduction The rise in prominence of foreign direct investment (FDI) has been matched by a global proliferation of public institutions mandated to pursue it.2 Nearly 200 investment-promoting institutions exist as part of national governments, while some 2,000 are estimated to operate as arms of subnational governments. Though such a fierce increase in competition may be felt most strongly in years when FDI flows decline, even in times of growth governments must compete for new FDI and keep established investors from leaving for more competitive locations.

    Opinions differ on the types of services IPAs should offer to address investors’ needs. Until the early 2000s, investment promotion was used mainly as a tool to influence and attract potential

    investors. IPAs paid little attention to investment establishment or post-establishment services, and many governments around the globe still underestimate the importance of IPA services beyond attracting investment. An internal World Bank survey of IPAs in 2017 revealed that most IPAs’ investor services fall within the attraction stage. (See figure 1 for IPA service-delivery heat map.) Many investment promotion programs — typically labeled promotion, facilitation, and aftercare — leave important service gaps.

    This note introduces the Comprehensive Investor Services Framework (CISF). The CISF is a comprehensive, investor-centric, and service-oriented approach that helps governments and IPAs understand the importance of providing relevant, standardized services to the investor at

    1 The In Focus note “Establishing a High-Performing Institutional Framework for Foreign Direct Investment (FDI)” provides policy advice on the institutional set-up of IPAs (Heilbron and Whyte 2019). Key factors that directly affect the quality of IPA services include high-level government support, strategic focus and alignment, institutional autonomy and collaboration, mandate clarity, and adequate financial and human resources.

    2 Before 1990, annual global FDI inflows had exceeded US$200 billion. As various globalizing factors came into play (cheap fiber-optic communications, the internet, the containerization of cargo, and so forth), global FDI inflows rose dramatically, reaching a record high of US$1.9 trillion in 2007. Even during the past decade, which was marked by the global financial crisis and macroeconomic problems, annual global FDI inflows averaged US$1.5 trillion (UNCTAD 2018).

  • STRENGTHENING SERVICE DELIVERY OF INVESTMENT PROMOTION AGENCIES2 | 2 |

    every stage of the investment cycle (attraction, entry and establishment, retention and expansion, and linkages and spillovers).3 The CISF helps start the conversation about what services need to be provided, aspiring at improving service delivery to achieve more and better FDI and avoiding typical gaps in service delivery, especially those of traditional IPA promotion programs. Globally, the CISF could help improve and expand the service delivery of IPAs—to both their own and their investors’ benefit. Some leading IPAs are already adopting similar frameworks in an effort to optimize their service offering and set a benchmark for the future. One good practice, for example, is for IPAs to ensure their offerings include relevant services for investors in strategic sectors. Realistically, though, IPAs in developing countries may be unable to provide personalized services across all the categories and stages described in this note because of either strategic goals or constraints on resources or capacity.

    Rationale A recent investor survey (World Bank, forthcoming) reveals that multinational enterprises generally find IPA services valuable. Around 90 percent of the investors surveyed considered at least one IPA service to be important or critically important, having selected services across several categories and stages of the investment life cycle. These services included advocacy and assistance with operational issues, which, unfortunately, IPAs tend to ignore.

    IPAs may be providing undervalued services to investors while neglecting to offer services that would be highly valued. Figure 2 illustrates the case of a real economy’s IPA. This IPA’s customer base is dissatisfied with the IPA’s services, compared with global averages of customer satisfaction (83 percent). Dissatisfaction is especially strong for those services that investors value the most. The World Bank’s 30 years of operational experience in the field confirm

    Figure 1. IPA Services Offered by Category and Investment Stage: Mostly at the Attraction Stage

    3 Investor services alone cannot attract or retain investors; therefore, an IPA’s services must build on the location’s attractiveness as an investment destination. This includes providing advocacy services to continuously improve it.

    Source: Data from internal global survey of IPAs, World Bank Group 2017. Note: Stages are grouped according to the World Bank Group’s proposed investment policy and promotion life cycle (attraction, entry and establishment, retention and e