Business environment and investment promotion

 

Rationale | Key considerations | Policy practices | Resources | Next

 

2.1 Does the government have a strategy for developing a sound, broad-based business environment and within this strategy, what role is given to investment promotion and facilitation measures?

 

Rationale for the question

A sound, broad-based business environment is a process as much as an outcome. Countries that have sound climates maintain them through following formalised processes to evaluate business conditions and adapt continuously to competition and to changing economic conditions. Such evaluations require institutions for setting and monitoring a business environment strategy.

As part of this process, investment promotion and facilitation can help attract new investors and retain existing ones, especially in smaller, more remote markets or in those countries with a recent history of macroeconomic and political instability. Effective investment promotion serves to highlight profitable investment opportunities, by identifying local partners and by providing a positive image of the economy. Promotion should not be seen as a substitute for more general policy reforms or try to camouflage underlying weaknesses in the investment climate.

 

Related PFI questions:

Question 1.1 on laws and regulations concerning investment
Question 2.4 on streamlining administrative procedures
Question 3.1 on administrative barriers to trade
Questions 10.1–10.5 on regulatory barriers

 

Key considerations

Having a formal process for improving the business climate requires a responsible institution with procedures to develop strategy and manage investment promotion. These tasks can be accomplished without necessarily establishing a dedicated investment agency, although many governments have taken this route. What follows are some of the key factors to be considered, which would apply equally to a single investment agency or where responsibility is assigned to relevant agencies or ministries.

 

  • A dedicated unit or decentralised approach
    A dedicated investment agency to lead investment promotion and strategy can be valuable, but coordination among the many ministries concerned with economic affairs and regulation remains a challenge. Different agencies have different points of view and responsibilities and hence might not all see investment proposals in the same way. If there is a central investment agency, it must have a clear strategy for inter-governmental communication. In some ways it must act as a diplomat within government, conveying to government the concerns of business and balancing these against the different regulatory imperatives in different agencies. If there is no central investment agency, clear responsibility should be assigned to a lead ministry to develop a sound strategy for investment and create regular procedures for dealing with business and managing change.
     
  • Communication and surveying
    Laws and regulations may frequently have unintended consequences or, if unchanged amid changing global market conditions, become outdated or obstructive. Framing good regulatory responses to such challenges requires clear, up-to-date information, including through direct communication with existing and potential investors. Dialogue with investors is considered in Question 2.5 in the context of the IPA.
     
  • Policy formulation
    Reaching out regularly to business can enable the government to spot trends early and begin taking action. Once such practices point to the need for a change in regulation, there should be a clear, thorough and efficient process for formulating responses. Efforts to draft new regulations should involve government, industry and other stakeholders and should be based on sound research into best practices in other countries. Speed is an important factor. If new regulations or customs duty rates are needed in response to deteriorating conditions in a sector, changes can be of no help if they come after businesses have closed or withdrawn from the market.
     
  • Structured approaches to proposed regulations
    Once a proposed policy change has been drafted, it should be circulated to interested parties and government agencies for comment as part of a regular, timely and transparent process. To work effectively, government should maintain an up-to-date database of the various industry representative bodies and major players in each market. Sufficient time is needed, both for interested parties to study proposals properly and for the government to reconsider all inputs from the period of public comment.

 

Policy practices to scrutinise

Investment strategy

  • Does the country have an investment strategy document? Is it based on a factual study of the current investment climate and its opportunities and challenges?
     
  • Does it offer guidance to government agencies about what sectors are to be targeted for investment promotion? Are the reasons for the selection of these sectors clear, reasonable and realistic?
     
  • Is the strategy sufficiently flexible to allow the responsible institution to respond to new developments?
     
  • Within the agency(ies) responsible for investment promotion, are there clear goals and sectoral targets defined so that staff know their priorities? Are there sufficient staff and resources available to achieve these goals?

Information gathering, stakeholder consultations

  • In what ways does the government gather information on the investment climate? How would you rate the effectiveness of each method? Are there improvements in the frequency or quality of such methods that you or investors would recommend to improve the process of setting and improving investment strategy?
     
  • Is there a clearly defined policy formulation process that involves relevant stakeholders and government agencies? Are the procedures efficient and transparent? What improvements to the policy formulation process have investors or government agencies suggested?
     
  • Is there a clear regulation governing the processes used to gather public comment on proposed regulatory changes? Is there an efficient database and communication system to support electronic dissemination of proposals and to solicit timely feedback? Are there formal rules for how public input should be considered? Is an appeals process available when business believes proposed changes would seriously damage economic viability or impair the use of assets and investments?

 

Resources

See the investment promotion and facilitation resource library.

 

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