Establishing an investment promotion agency (IPA)

 

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2.2 Has the government established an investment promotion agency (IPA)? To what extent has the structure, mission, and legal status of the IPA been informed by, and benchmarked against, international good practices?


Rationale for the question

More than are now more than 220 members from 154 countries are now registered with the World Association of Investment Promotion Agencies (WAIPA), as well as more than 250 sub-national IPAs. The rapid growth in the number of IPAs reflects the growing importance that governments attach to investment promotion. Creating such an agency is a means to an end and will not by itself guarantee success. Some IPAs are much more effective than others. A variety of internet sites and information networks provide information on the different approaches to setting up an IPA (see Question 2.8). Comparing a national IPA against international practices can provide valuable insights and help improve the way the agency is structured and managed.

Related PFI questions:

Question 4.4 Competition policy evaluation and intra-governmental coordination

 

Key considerations

Centralising foreign investment promotion and facilitation activities, such as information dissemination and policy advocacy, within a single agency can be cost effective and can help to present a coherent impression of a country’s attractiveness to investors. The growing number of IPAs has yielded a rich body of experience on the different approaches to IPAs across countries at different levels of development.

Countries that have recently established IPAs, or are contemplating doing so, can use this experience to inform the design of the IPA following international good practices.

The PFI user should consider the following elements in any evaluation of the structure, mission and status of an IPA:

Four roles for an IPA – International experience suggests four main roles for an IPA: 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; and targeting or investment generation by actively seeking out investors based on national development plans or other criteria. These roles should all be reflected in the IPA’s mission, internal structure, and funding. Image-building – including advertising, producing promotional materials and attending trade fairs – can be very expensive, as can efforts to target particular investors owing to the high cost of research and incentives to induce the business to invest.
While there is a natural tendency for an IPA to focus on promotion, where results are most tangible, the impact of advocacy should not be downplayed. The effectiveness of the IPA in selling the country to investors depends on the quality of the investment climate. The IPA is the front-line in hearing about adverse perceptions or practical problems and thus plays a role as advocate for investors within government, whether by seeking approvals for permits or requesting fundamental changes to laws and regulations. A World Bank survey suggests that the strength of an IPA’s advocacy within government has been more critical to winning investment than the other three IPA roles. If the investment climate is sound, investors will come and the need for promotion, servicing and targeting are reduced.
The IPA’s ability effectively to resolve problems is related to its legal status, mandate and location within government. Political support is often critical in overcoming vested interests, in providing the IPA with leverage over line ministries and local governments and in ensuring investor compliance. Sustaining this political interest has proven to be a challenge, especially under changing political circumstances. In practical terms, international experience suggests that to be most effective as an advocate within government and to be able to remove obstacles to particular investments, an IPA should report directly to the president or prime minister.

 

Policy practices to scrutinise

  • Where within government is the IPA located, and does it have direct access to the centre of government to facilitate its advocacy role?
  • Are there provincial IPAs and, if so, how are responsibilities divided between the different levels?
  • More than 70% of IPAs say they were established to act as a one-stop-shop for approvals and licensing, but investment projects often require approval from many government agencies and sub-national governments in such areas as land use, labour practices, safety, taxes and customs and the environmental impact. How can the IPA help to expedite decisions in these cases? Does the IPA’s legal mandate recognise it as the lead agency?
  • Does the IPA promise completion of all investment approvals within a certain timeframe and what is its track-record in meeting this promise?
  • How is the IPA budget and staff allocated across the four functional roles of advocacy, image-building, facilitation and targeting? Do these functions have the resources they need to succeed?
  • How does the IPA divide its time between advocacy of investment climate reforms, image building, facilitation and direct targeting and how does this compare to international experience?
  • Has the IPA engaged with agencies from other countries to learn how effectively to advocate reform and maintain good relations with government departments?
  • Has the IPA studied image-building campaigns and materials from other countries to find techniques that can improve its work?
  • How have other countries implemented effective one-stop-shops?  Do they involve economic ministries on the IPA board, transfer permit authority to the IPA or appoint liaison officers to different ministries?

 

Resources

See the investment promotion and facilitation resource library.

 

 

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