WASHINGTON, USA — Resources, presence overseas and the level of targeting of Investment Promotion Agencies (IPAs) contribute considerably to attracting greater volumes of foreign direct investment and to bringing multinational companies to their respective countries, according to a study by the Inter-American Development Bank.
Foreign direct investment (FDI) is a key driver of economic development. Despite drops in recent years, global inward FDI stock rose from six percent in 1980 to nearly 40 percent in 2017. In this context, the number of countries with IPAs quadrupled over the last 30 years in countries of Latin America and the Caribbean and the Organization for Economic Co-operation and Development (OECD).
The report, How to Solve the Investment Promotion Puzzle , presents the most complete and novel mapping of the institutional organization and activities of IPAs from 51 countries of Latin American and Caribbean and OECD members.
In general, agencies in Latin America and the Caribbean are smaller and more independent than those in OECD countries, and focus and evaluate their work less than those in developed countries. But they perform similar activities to attract, facilitate, and retain investments.
However, there are differences between countries. Costa Rica stands out for its high levels of independence, specialization, and evaluation of its impact. Chile is notable for its efforts in evaluation, specialization, and inter-institutional cooperation. And Uruguay is set apart by its level of cooperation with other agencies.
“This study satisfies the demand from Latin American and Caribbean governments to learn how other agencies operate. The needs, capacities, and institutional characteristics of each countries are unique, so rather than seeking a silver bullet, the report aims to give officials the tools to solve their policy puzzle to attract investment,” said Christian Volpe Martincus, principal economist at the Integration and Trade Sector of the IDB, and the report’s co-author.
Monika Sztajerowska, an economist at the Investment Division of the OECD and co-author of the study, said that “this report provides valuable inputs for international organizations as they support countries to attract and retain investments, as well as for those doing the necessary work of evaluating the impact of these efforts.”
More specifically, the report found that:
- Latin American and Caribbean agencies have a median annual budget of US$5 million, compared to US$14 million for OECD countries. The largest OECD agency has a budget equivalent to 4.6 percent of Nicaragua’s GDP, but it accounts for less than one percent of FDI inflows in that group of countries.
- The median IPA employs 100 people, 32 of whom work on investment promotion. The median Latin American and Caribbean agency assigns 20 people to this function, compared to the OECD median of 40. Most employees (over 97 percent) hold undergraduate or postgraduate degrees.
- Latin American and Caribbean agencies receive a lower share of funding from the public sector than OECD agencies.
- OECD agencies have a much more extensive network of overseas offices than Latin American and Caribbean IPAs.
- Apart from investment promotion, the most common mandates include the promotion of exports, innovation, green investments, regional development, and domestic investment.
- IPAs differ from each other in their approaches to promotion: some prioritize and exclude sectors, countries, investors, and/or projects. Others only focus their targeting efforts on one or two of these aspects.
- Most of the agencies interact with many public, private, and international organizations.
The data used in the report was collected through a joint IDB/OECD survey.