Evaluating the Role of IPAs

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Evaluating the Role of IPAs in the New
Investment Scenario
WAIPA Investment Conference 5 December 2008 Rio
de Janeiro, Brazil
By Paul Wessendorp UNCTAD
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Global FDI inflows 1980-2008 (Billion US dollars)
Source UNCTAD, FDI/TNC database.
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Drop in global FDI inflows

• Global FDI inflows for 2008 are expected to be
  1,600 billion - a decline of about 10 from 2007
  (June 2008 estimate)
• UNCTADs World Investment Prospects Survey,
  2008-2010 points to decreasing optimism among
  foreign investors
• Source UNCTAD, World Investment Report, 2008.

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How does the current crisis affect investors?

• Companies are faced with
• Declining profitability
• Tighter credit conditions
• Lower stock values
• Slower market growth
• A feeling of uncertainty about the future
• As a result, companies reduce expenditures
• on investment, leading to less FDI.

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How can IPAs deal with the crisis?

• Less FDI will mean tougher competition for
  investment projects.
• IPAs should reassess current activities in light
  of the new scenario
• Continue or strengthen promotion efforts that
  yield results
• Scale down or stop promotion efforts unlikely to
  yield results given the global slowdown (but with
  restarting in mind dont end valuable
  relationships!)
• Shift promotion efforts towards countries and
  sectors less affected by the crisis or investors
  that may need to reallocate operations due to the
  crisis
• Strengthen investor aftercare to help financially
  troubled investment projects stay in business
• Policy advocacy aimed at improving the investment
  climate to counter the effects of the economic
  downturn

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IPAs should make the most of investors they
already have
Reinvested earnings of TNCs value and share in
total FDI inflows 1990-2007
Source UNCTAD, FDI/TNC database
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through investor aftercare andpolicy advocacy

• Investor aftercare
• Includes both post-establishment facilitation
  services and development support activities
• Improves project implementation rates, encourages
  reinvestment, enhances the development impact of
  investment, and builds a good reputation as an
  investment location
• Policy Advocacy
• Creates a better investment climate
• Can improve business linkages, transfer of
  know-how and technology, and overall national
  competitiveness.

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and IPAs need to adapt to new circumstances

• IPAs that regularly evaluate their activities and
  implement recommendations can better adapt to
  changed circumstances and improve performance.
• IPAs that regularly evaluate their activities can
  show governments that they are getting value for
  money and avoid budget cuts or closedown.

But, research has shown that few IPAs do carry
out regular and systematic evaluations.
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Two approaches to evaluation

• Doing the right thing is the IPA playing the
  role that it should?
• Doing the thing right is the IPA carrying out
  its activities in an efficient way?
• The two approaches are complementary and use the
  same basic tools, data, and information sources.

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Doing the right thing
What should the IPA do to counter market failures?
How should the IPA do this?
To what extent is the IPA fulfillingits intended
role?
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A method to determine outcomes of IPA activities
Inputs that generate Gross attributable outputs
(total outputs)
(-) Deadweight
(-) Leakage
(-) Substitution
Gross direct outputs
(-) Displacement
Net direct outputs
() Income multipliers
() Supply multipliers
Net outputs
(/-) Dynamic multiplier effects
Total net outcomes
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Doing the thing right
Evaluating performance in main areas of an IPA

• Funding
• Human resources
• Strategy
• Marketing
• Operations

Tools balanced scorecard, SWOT analysis, market
surveys, etc.
Putting all the pieces together It is important
that evaluation of separate areas of the IPA form
part of an integrated mutually supportive whole.
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SWOT A tool for evaluating the IPAs strategic
environment
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Doing the right thing?
Yes
No
Yes
Doing the thing right?
No
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Information sources used for evaluation

• Stakeholders
• Government, other IPAs, chambers of commerce,
  etc.
• Clients
• Investors who received assistance from the IPA
• Non-clients
• Investors who didnt use the IPA
• IPA management and staff
• Literature, reports and articles
• Publications and reports on FDI, specific
  sectors, etc.
• Performance data
• Number of projects, jobs created, company visits,
  etc.
• Financial inputs

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Evaluation tools

• Interviews and surveys
• Face-to-face potentially very accurate but also
  expensive.
• Telephone less expensive but also less accurate.
• Computer-aided telephone interview (CATI) even
  less expensive but requires a well-defined script
  for the interviewer.
• Web-based surveys again inexpensive, but you
  cannot persuade respondents to participate and
  there is risk of misunderstandings.
• Reviews of literature and reports
• International business magazines and reports,
  government reports, sector studies, articles, etc.

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• Invest in Sweden Agencys (ISA) "follow-up
  system"
• Registration of all contacts
• Investor feedback (questionnaire)
• Evaluation of results by ISAs Audit Committee
• Annual investor perceptions survey (by external
  party)
• Annual follow-up of the past three years new
  establishments
• Scorecard for countries, focus areas and projects

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Conclusion

• The economic crisis poses several challenges to
  IPAs
• Less FDI will lead to tougher competition for
  investment projects.
• Governments looking for ways to cut expenditures
  will review the funding of IPAs and even the need
  for such institutions.
• Regular evaluations can help an IPA to cope with
  these challenges by
• Providing opportunities to learn lessons from the
  past in order to improve present and future
  performance.
• Proving to governments that there is need for an
  IPA and that its services are useful.

• In sum IPAs should adapt to the changed
  circumstances and review their activities in
  light of the new scenario. In times of crisis,
  they should also focus more on existing investors
  through aftercare and policy advocacy.

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Investment Advisory Series A
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Forthcoming IAS issues
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Thank you

• UNCTAD
• http//www.unctad.org