Institutions for FDI Attraction

1. Institutions for FDI Attraction A Strategic Framework for Investment Policy and Its Governance Geoffrey WaltonVienna, June 2011

2. A Strategic Framework for Investment Policy A strategic framework for investment policy may be thought of as a process of asking and answering the following questions: • What are the goals and objectives underpinning investment policy and supporting institutions? • How does investment policy fit into the wider strategic planning framework (if any)? • Are interdependencies between investment policy and other influences on growth (e.g., macro policy, political risk) properly recognised? • What would have to change to get closer to aligning a country’s “location offer” with realistic investment policy goals, and global best practice? • What are the constraints, risks and tradeoffs in transitioning to a better structure? • How should we define and measure “success”?

3. Strategic Planning Relations Values Vision Purpose Key result areas (KRAs) Goals Objectives Performanceindicators Strategies Actions

4. Advantages of a Strategic Approach • Makes policy coordination more of an imperative • Ensures that implementing regulations and institutions are “in dialogue” with each other • Clarifies what the government can influence and where the private sector is likely to have higher impact • Requires ex ante consideration of desired outcomes/results and their measurement • Encourages institutional efficiency (cost savings) • Sets in motion a virtuous cycle for governance improvement • Administrative processes become more meaningful with transparent and measurable outcomes

5. Government Impacts on Competitiveness • Security-risks to assets and supply • The regulatory environment and its cost impact • Cost of power and other govt. services • Fiscal/tax measures and after tax profits • Access to markets and information • Infrastructure and services quality • Contribution to skills enhancement and productivity • These generatekey result areas (KRAs)

6. The Investment Policy Challenge of Aceh, Indonesia Things that matter most for investors • Macroeconomic & political risks • Costs, including regulation • Access - natural resources, land • markets and market information • Infrastructure • Labor • Taxes Existing competitiveness Comparative advantages and disadvantages of Aceh analysed in terms of these factors for key sectors Identify scope for provincial/district governments to influence these factors through policy & institutional reform Improved competitiveness • Strategic government intervention: • selective (key results areas) • systematic and coherent strategies with well defined objectives • specific actions with measurable results Enhanced investment prospects

7. Improving Perception of Risk • KRA1 – Investor perceptions of risk • Objective – reduce required return on investment through of reduction in perceived risks • Strategy- credible guarantees issued by government against illegal acts/charges • Activities - • Governor and district heads sign joint security guarantees • Adopt reform framework for district revenue administration • Fast track responses to complaints of illegal treatment

8. Improving Competitiveness • KRA 2- Regulatory costs of setting up business • Objective - Aceh as a national leader in time and certainty to establish a business • Strategy - Minimize regulatory complexity (and therefore costs) and create clear investor guidelines • Activities - • national/provincial/district cooperation • set max time limits for provincial/district clearances • bundle licenses/eliminate licensing steps • create record of registrations and actual investment