Empowering investment promotion agencies: a critical step for global FDI recovery

by Ismail Ersahin

As the world grapples with economic uncertainties, geopolitical tensions, and the aftershocks of the pandemic, the role of investment promotion agencies (IPAs) has never been more vital. These agencies are at the forefront of attracting and facilitating foreign direct investment (FDI), which is crucial for global economic recovery. However, to effectively drive FDI in this challenging environment, IPAs need to be better empowered, resourced and supported.

IPAs serve as the bridge between potential investors and host countries, providing essential information, facilitating connections, and smoothing regulatory pathways. Their work can mean the difference between a multinational enterprise choosing to invest in a country or looking elsewhere. By attracting FDI, IPAs help create jobs, transfer technology, and stimulate economic growth. In the context of a global economy that saw FDI drop by 2% to $1.3 trillion in 2023, the work of IPAs is both more challenging and more essential.

Despite their critical role, many IPAs face significant challenges. Limited funding, bureaucratic obstacles and insufficient authority can hamper their effectiveness. In an era where economic fracturing, trade and geopolitical tensions, and supply chain diversification are reshaping FDI patterns, these agencies often struggle to keep up. Without adequate resources, IPAs cannot effectively market their countries, facilitate investment processes, or provide the necessary aftercare to retain investors.

Equipping IPAs for success

To enhance the effectiveness of IPAs and stimulate global FDI recovery, several measures need to be taken:

1. Increased funding: Governments must allocate more resources to IPAs. This funding is crucial for marketing campaigns, investor facilitation services, and capacity building. Well-funded IPAs can better compete on the global stage, attracting high-value investments that drive economic growth.
   
2. Streamlined bureaucracy: Reducing bureaucratic red tape and enhancing the operational efficiency of IPAs can significantly improve their effectiveness. Streamlined processes for business registration, permits, and regulatory compliance can make a country more attractive to investors.
   
3. Enhanced authority and autonomy: Granting IPAs more autonomy and authority can enable them to respond swiftly to investor needs and market dynamics. Empowered IPAs can negotiate better deals, advocate for investor-friendly policies, and implement strategic initiatives without undue delay.
   
4. Digital transformation: Investing in digital tools and platforms can help IPAs reach a broader audience and provide seamless services. Virtual site visits, online investor portals, and digital marketing campaigns can enhance engagement with potential investors, particularly in a post-pandemic world.
   
5. Strategic partnerships: Building strong partnerships with other government agencies, local businesses, and international organisations can amplify the impact of IPAs. Collaborative efforts can help align investment promotion strategies with broader economic goals and create a more supportive environment for investors.
   

A call to action

As we enter the second half of 2024, the global environment for international business and cross-border investment remains volatile. However, with high profit levels among multinational enterprises and easing financing conditions, there is potential for renewed growth in FDI. To capitalise on this opportunity, empowering IPAs is not just an option; it is a necessity.

Governments and policymakers must recognise the pivotal role of IPAs in driving economic recovery and take decisive action to support them. By investing in the capabilities and resources of IPAs, we can pave the way for a more robust and resilient global economy, where FDI flows not only recover but thrive.

The road to global economic recovery runs through the corridors of IPA offices. Let us ensure they are equipped, empowered, and ready to lead us into a prosperous future.

Ismail Ersahin is CEO and executive director of the World Association of Investment Promotion Agencies