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Context

Productive private sector investment is an important component of developing countries¡¯ growth strategies. Attracting FDI helps to link a country¡¯s economy to global value chains and facilitates economic upgrading. FDI brings investment, jobs, increased exports, supply chain spillovers, new technologies and business practices to countries. While the benefits of FDI are well recognized, they do not flow without a conducive policy, legal and institutional environment.

In a global landscape deeply impacted by the COVID-19 pandemic yet still subject to rapid technological change and political uncertainly, countries must refine their value propositions as investment locations. Moreover, to fully capture the benefits of FDI, a country requires clear and effective implementation of investment strategies and policies. By leveraging a comprehensive approach that addresses the legal, regulatory, procedural and institutional barriers affecting all phases of the investment life cycle, the World Bank Group helps countries establish a competitive investment climate that is favorable for attracting, retaining, and expanding sustainable FDI.

Strategy

Developing an Investment Reform Map and/or FDI Strategy:

• Analysis and logical framework to capture the quantum and quality of FDI flowing into countries and the policy mixes and regulatory approaches required to maximize its benefit;
• Setting priorities to design coherent investment policy and promotion reform agendas to attract, facilitate, retain, and maximize positive spillovers of FDI into the host economy.

Improving the effectiveness of policies aimed at attracting and facilitating entry of FDI:

• Enhancing investment promotion capacity, including the competitive proposition for facilitating investment in priority sectors and capacity building for outreach and facilitation;
• Helping countries reform their investment entry regimes by implementing nondiscriminatory treatment of investors, reducing sectoral restrictions and performance requirements and streamlining procedures to attain development objectives.

Promoting good practices in the effectiveness of investment incentives:

• Helping countries identify whether and how incentives contribute to FDI inflows and policy objectives such as employment generation, gender empowerment and sustainable development.

Strengthening investor confidence to help clients retain and expand FDI:

• Upgrading legal and regulatory frameworks to reduce political risk faced by investors; 
• Designing and implementing investor aftercare programs that facilitate retention, expansion, and diversification while deepening links with local suppliers.

Preventing investor/state disputes by establishing investor grievance mechanisms:

• Promoting best practices in tracking and resolving key regulatory implementation issues through investment grievance management for investment retention and expansion.

Maximizing linkages and positive spillover effects from FDI to the host economy:

• Developing a strategic action plan for FDI linkages to remove distortive policies, connect MNEs and local firms, upgrade local firms and attract foreign suppliers.

In practice

• Ethiopia opened six new sectors for FDI. Within two years of the reform $96m in FDI was directly generated. Ethiopia¡¯s Investment Commission also established a mechanism to address investor grievances prior to their escalation to international disputes. This has led to USD 5.4 million FDI retained to date.
• The removal of entry restrictions in Myanmar, through a new negative list opening 70 sectors to full foreign ownership and the reduction of FDI screening through a unified investment law, led to a six-fold increase in approved FDI projects between FY 13 and FY 16, from USD 1.4 billion to USD 9.5 billion.
• In Sri Lanka, the government adopted a new Inland Revenue Act in 2017 that helped improve tax transparency and administration and eliminated all tax holidays in favor of performance-based investment incentives.
• Between 2015 and 2018, Jordan, Iraq, Ethiopia, Pakistan, Bosnia and Herzegovina, Armenia, Tajikistan Moldova and Kyrgyz Republic published comprehensive investment incentives inventories meeting standard criteria for transparency, accessibility, comprehensiveness, and sustainability, improving investor confidence.
• In Iraq, the establishment of an investor grievance mechanism within the Basra Investment Commission led to USD 220 million in FDI previously at risk of divestment being retained.
• In Georgia, USD 80 million FDI at risk was retained following the establishment of an Investment Ombudsman.
• In Guinea, an online supplier marketplace platform was established to address the low levels of local supplier participation in the mining sector. 883 domestic companies (111 women-owned) registered on the platform.  77% of requests for proposal posted have been awarded to SMEs registered on the platform.
• The first phase of a supplier development program in Vietnam has led to 70% increased capacity of SMEs through application of new standards and management tools, a 50% increase in profit and turnover, 42% established new connections with MNE buyers of which 9% became formal suppliers to MNEs.
• Since 2017, WBG investment promotion support in Mali, Ethiopia, India (Assam), Tunisia, and Bosnia Herzegovina has led to combined investment generated of USD 608 million.

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Experts

Asya Akhlaque, Practice Manager, Investment Climate

Ivan Anton Nimac, Lead Private Sector Specialist and Global Lead

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