Effective economic diplomacy amid crisis

Posted: ফেব্রুয়ারি 19, 2009 in Economics, Foreign direct investment(FDI)

While Economic Diplomacy is something of a buzz phrase these days in policy circles, its importance has undoubtedly grown in a face of a global financial crisis that is expected to intensify over the balance of 2009.

The term can cover a wide range of activities of government, from specialist agencies domestically to the role of our embassies overseas in promoting the economic interests of Bangladesh overseas.

Broadly speaking, I would subdivide it into export promotion of our goods overseas to efforts to attract foreign direct investment (FDI) to this country. The Institute for International Finance forecasts global capital flows to Emerging Markets will collapse in 2009 to $165 billion from $929 billion in 2007.

Bangladesh needs to focus its efforts if it is to increase its FDI flow in the face of a rapidly diminishing global pie. My February 5 column discussed a strategy for export diversification and this time I wanted to focus on how we might re-energise our efforts to attract greater FDI. I received much valuable input from an AT Capital seminar on FDI held on February 17 attended by participants CEOs of leading Bangladeshi companies, FBCCI, embassies, multilateral agencies and former secretaries in government.

Investment promotion activities can be grouped into four areas: (i) national image building, (ii) investment generation, (iii) investor servicing and (iv) policy advocacy. Image building activities aim to build a perception of the country as an attractive location for foreign direct investment. Investment generation involves identifying potential investors who may be interested in establishing a presence in the country, developing a strategy to contact them and starting a dialogue with the purpose of having them commit to an investment project.

Investor servicing involves assisting committed investors in analysing business opportunities, establishing a business and maintaining it. Policy advocacy encompasses initiatives aiming to improve the quality of the investment climate + identifying the views of private sector in this area. The purpose of investment promotion is to reduce the costs of FDI by providing information on the host country, helping foreign investors cut through bureaucratic procedures, and offering fiscal or other incentives to international investors.

Torfinn Harding and Beata Smarzynska Javorcik have published a recent paper “Developing economies and international investors: Do investment promotion agencies bring them together?” Their analysis contains information on investment promotion efforts in 109 countries, representing all income groups and geographic regions. About three quarter of responses pertain to developing countries. Data covers from 1990-2004. They find that targeted sectors receive more than twice as much FDI as non-targeted sector. It is believed that agencies accountable to external entities are more effective than those accountable to a board. IPAs that provide up-to-date, detailed and accurate data on their websites and IPAs that are willing to spend time preparing detailed answers to investors’ inquiries and customise these answers to the needs of an individual investor can increase the chances of their countries being included in the short list.

The FIAS group of the World Bank has made the following suggestions on investment promotion strategy. Sector profiles provide specific information about sectors in which your location is deemed competitive. Focus on developing materials only for those sectors that have been assessed to offer the greatest potential for investment opportunities. Most IPAs also produce opportunity profiles or specific project proposals to steer investors to tangible investment opportunities.

In some cases, the opportunity profiles will have a single project opportunity with several details, while in other cases a set of brief profiles might be included in one document. Opportunity profiles are an excellent way for domestic firms to ‘advertise’ joint venture opportunities. In a sense, these profiles can pave the way for matchmaking with foreign firms. Newsletters are also commonly used by IPAs to keep investors up-to-date on what is happening in their location. They are very effective for maintaining regular contact with investors and help people to remember your location. For relatively new or small IPAs, newsletters can be prepared and distributed bi-monthly or quarterly.

A monthly newsletter is normally too burdensome for small IPAs because of the intensive effort required for writing, formatting and disseminating the newsletter every month. Rather than merely having all sorts of miscellaneous updates and news, it is useful to at least occasionally develop a particular theme (e.g., policy reforms) or highlight a selected sector (e.g., food processing) in an issue of the newsletter.

Investors often find these types of newsletters very informative because they contain a lot of condensed information on a sector or a current issue of concern to investors.

Some specific recommendations that the BD government might consider include:

BOI Reforms: Accelerate the proposed reform programme for the Board of Investment (BoI) including the setting up of a new ‘Investment Bangladesh’ wing. This new organisation will be solely tasked with attracting FDI by developing sector research and direct marketing to prospective investors either on a country or company specific basis. The administrative and regulatory aspects of the BoI, which are also important, should reside in the existing organisation that will become a separate division. It is critical to attract more qualified and credible senior BoI officials from the private sector if the re-energisation of the BoI is to be effective. This clearly necessitates that salary levels for the BoI need to be increased towards commercial levels. FBCCI should form a sub-committee for FDI that deepens relations with trade bodies in target markets and ensures higher frequency dialogue and interactions to maximise potential investments and joint ventures.

New Brand Bangladesh Taskforce: The re-branding of Bangladesh as an attractive investment destination is critical. The government should set up a Brand Bangladesh taskforce with core committee composed of the heads of the BoI, EPB, Foreign Ministry, FBCCI and NRBs professional groups from Europe and the US. It is also important to set up sub-committees within the key export destinations.

The committee should appoint a professional brand strategist with international experience of nation branding for successful investment destinations such as Malaysia and Singapore. The National Branding Taskforce should also focus on providing training, guidance and monitoring of commercial sections of Bangladesh embassies in key target markets. The committee should also liaison with donor agencies and bilateral aid organisations such as DFID, USAID, CIDA, DANIDA and others to leverage their contacts.

In conclusion, the global crisis makes an effective strategy for attracting investment that is more important. But if Bangladesh can leverage the economic resilience it showed relative to its regional neighbours in 2008 to attract more FDI, it can emerge stronger from current economic meltdown.

Ifty Islam is the managing partner of Asian Tiger Capital Partners and welcomes feedback at ifty.islam@at-capital.com

The daily star 20.02.2009






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