Evaluating the Role of IPAs in the New Investment Scenario

1. Evaluating the Role of IPAs in the New Investment Scenario WAIPA Investment Conference 5 December 2008 Rio de Janeiro, Brazil By: Paul Wessendorp UNCTAD

2. Global FDI inflows 1980-2008 (Billion US dollars) Source: UNCTAD, FDI/TNC database.

3. Drop in global FDI inflows • Global FDI inflows for 2008 are expected to be $1,600 billion − a decline of about 10% from 2007 (June 2008 estimate) • UNCTAD’s World Investment Prospects Survey, 2008-2010 points to decreasing optimism among foreign investors Source: UNCTAD, World Investment Report, 2008.

4. How does the current crisis affect investors? Companies are faced with: • Declining profitability • Tighter credit conditions • Lower stock values • Slower market growth • A feeling of uncertainty about the future As a result, companies reduce expenditures on investment, leading to less FDI.

5. How can IPAs deal with the crisis? Less FDI will mean tougher competition for investment projects. IPAs should reassess current activities in light of the new scenario: • Continue or strengthen promotion efforts that yield results • Scale down or stop promotion efforts unlikely to yield results given the global slowdown (but with restarting in mind – don’t end valuable relationships!) • Shift promotion efforts towards countries and sectors less affected by the crisis or investors that may need to reallocate operations due to the crisis • Strengthen investor aftercare to help financially troubled investment projects stay in business • Policy advocacy aimed at improving the investment climate to counter the effects of the economic downturn

6. IPAs should make the most of investors they already have… Reinvested earnings of TNCs: value and share in total FDI inflows 1990-2007 Source: UNCTAD,FDI/TNCdatabase

7. …through investor aftercare andpolicy advocacy Investor aftercare • Includes both post-establishment facilitation services and development support activities • Improves project implementation rates, encourages reinvestment, enhances the development impact of investment, and builds a good reputation as an investment location Policy Advocacy • Creates a better investment climate • Can improve business linkages, transfer of know-how and technology, and overall national competitiveness.

8. …and IPAs need to adapt to new circumstances • IPAs that regularly evaluate their activities and implement recommendations can better adapt to changed circumstances and improve performance. • IPAs that regularly evaluate their activities can show governments that they are getting “value for money” and avoid budget cuts or closedown. But, research has shown that few IPAs do carry out regular and systematic evaluations.

9. Two approaches to evaluation • Doing the right thing: is the IPA playing the role that it should? • Doing the thing right: is the IPA carrying out its activities in an efficient way? The two approaches are complementary and use the same basic tools, data, and information sources.

10. Doing the right thing What should the IPA do to counter market failures? How should the IPA do this? To what extent is the IPA fulfillingits intended role?

11. A method to determine outcomes of IPA activities Inputs that generate: Gross attributable outputs (total outputs) (-) Deadweight (-) Leakage (-) Substitution Gross direct outputs (-) Displacement Net direct outputs (+) Income multipliers (+) Supply multipliers Net outputs (+/-) Dynamic multiplier effects Total net outcomes

12. Doing the thing right Evaluating performance in main areas of an IPA: • Funding • Human resources • Strategy • Marketing • Operations Tools: balanced scorecard, SWOT analysis, market surveys, etc. Putting all the pieces together: It is important that evaluation of separate areas of the IPA form part of an integrated mutually supportive whole.

13. SWOT: A tool for evaluating the IPA’s strategic environment

14. Doing the right thing? Yes No Yes Doing the thing right? No

15. Information sources used for evaluation • Stakeholders Government, other IPAs, chambers of commerce, etc. • Clients Investors who received assistance from the IPA • Non-clients Investors who didn’t use the IPA • IPA management and staff • Literature, reports and articles Publications and reports on FDI, specific sectors, etc. • Performance data Number of projects, jobs created, company visits, etc. • Financial inputs

16. Evaluation tools • Interviews and surveys • Face-to-face: potentially very accurate but also expensive. • Telephone: less expensive but also less accurate. • Computer-aided telephone interview (CATI): even less expensive but requires a well-defined script for the interviewer. • Web-based surveys: again inexpensive, but you cannot persuade respondents to participate and there is risk of misunderstandings. • Reviews of literature and reports • International business magazines and reports, government reports, sector studies, articles, etc.

17. Invest in Sweden Agency’s (ISA) "follow-up system" • Registration of all contacts • Investor feedback (questionnaire) • Evaluation of results by ISA’s Audit Committee • Annual investor perceptions survey (by external party) • Annual follow-up of the past three years’ new establishments • Scorecard for countries, focus areas and projects

18. Conclusion The economic crisis poses several challenges to IPAs: • Less FDI will lead to tougher competition for investment projects. • Governments looking for ways to cut expenditures will review the funding of IPAs and even the need for such institutions. Regular evaluations can help an IPA to cope with these challenges by: • Providing opportunities to learn lessons from the past in order to improve present and future performance. • Proving to governments that there is need for an IPA and that its services are useful. • In sum: IPAs should adapt to the changed circumstances and review their activities in light of the new scenario. In times of crisis, they should also focus more on existing investors through aftercare and policy advocacy.

19. Investment Advisory Series A

20. Forthcoming IAS issues

21. Thank you UNCTAD http://www.unctad.org