Investment facilitation usually takes place through an investment promotion agency (IPA), typically a government agency whose mission is to attract investment to a country, state, region or city. IPAs usually have four roles (OECD 2011):
- advocacy within government to seek necessary approvals or urge the removal of obstacles to investment;
- image building to promote the country as an investment destination;
- investor servicing or facilitation to help solve problems faced by existing or potential investors;
- targeting or investment generation by actively seeking out investors based on national development plans or other criteria.
Donors such as the World Bank have focused extensively on helping IPAs in conflict-affected countries to attract foreign investment.
The literature suggests that centralising foreign investment promotion and facilitation activities, such as information dissemination and policy advocacy, through an IPA can be cost effective and can credibly signal the state’s intention to the private sector that it is interested in attracting foreign direct investment and improving the business environment for the private sector (te Velde 2006).
However, the evidence on whether IPAs in low income countries have actually succeeded in attracting foreign investment is limited. Most of the examples of successful IPAs are from developed countries such as Ireland and Singapore.
In a study of 58 countries, Morisset and Andrews-Johnson (2001) find that IPA effectiveness strongly depends on the country’s business environment, and is positively correlated with the quality of the investment climate. They also find that low-income countries get increased inflows of foreign direct investment from improving the business environment rather than from investment promotion. Gomez-Mera et al. (2014) find that IPAs play only a marginal role in raising awareness of investment opportunities in developing countries, and are not particularly effective in many African countries. However, once investors have made the decision to enter a specific market, IPAs appear to be a widely used and useful resource for investors, especially for smaller and less productive firms.
Williams (2004) and Higgins (2012) argue that the role played by investment promotion agencies can be gender sensitised and they can help to promote simplified procedures and single window approaches targeted at women. Peschka (2011) notes that, in FCAS country contexts, IPAs are reluctant to directly acknowledge political risks or suggest risk mitigation options, limiting the effectiveness of IPAs.
More evidence is needed in assessing whether well-functioning IPAs do contribute to effective state-business relations in low income countries, and what are the political drivers of successful IPAs in low-income countries.
- Gómez-Mera, L., Kenyon, T., Margalit, Y., Guilherme Reis, J., & Varela, G. (2014). New voices in investment: A survey of investors from emerging countries. Washington, DC: World Bank. See document online
- Higgins, K. (2012). Gender dimensions of trade facilitation and logistics : A guidance note. Washington, D.C.: World Bank. See document online
- Morisset, J., & Andrews-Johnson, K. (2001). The effectiveness of promotion agencies at attracting foreign direct investment (Foreign Investment Advisory Service Occasional Paper No. 16). Washington, DC: World Bank. See document online
- OECD. (2011). Policy framework for investment: User’s toolkit. Paris: OECD. See document online
- Peschka, M. P. (2011). The role of the private sector in fragile and conflict-affected states (World Development Report 2011, background paper). Washington, DC: World Bank. See document online
- Te Velde, D. W. (2006). Measuring state-business relations in Sub-Saharan Africa (IPPG Discussion Paper No. 4). Manchester: IPPG. See document online
- Williams, M. (2004). Gender, the Doha development agenda, and the post-Cancun trade negotiations. Gender and Development, 12(2), 73-81. See document online
