Presentation on 'Lessons in attracting FDI' by Hans Anand Beck, the World Bank Country Economist for Timor-Leste. This presentation was made during the Public discussion series on FDI hosted by the Presidency of the Republic of RDTL on 7 March, 2013.

1. ATTRACTING FDI Hans Beck,
World Bank
- INTERNATIONAL Country
Economist,
EXPERIENCE Timor-Leste
P R E S E N TAT I O N AT P R E S I D E N T ’ S S E M I N A R S E R I E S ,
DILI, 7 MARCH 2013

2. OUTLINE
What is FDI?
What are the global trends in FDI?
Who has done well in attracting FDI?
Why have they done well?- what do
investors look for? Role for Government?

3. TAKEAWAYS
1)FDI is an excellent way to finance
development. But it is not a silver bullet.
• Diversified financing strategy.
• Not all FDI is good
2)There are a many motivations for FDI
3)A good investment climate is a necessary, but
not sufficient condition for attracting FDI.

4. WHAT IS FDI?
Foreign direct investment: The net
inflows of investment to acquire a lasting
management interest (10 percent or
more of voting stock) in an enterprise
operating in an economy other than that
of the investor.
Distinct from Portfolio Investment.
(SNA 2008)

5. GLOBAL TRENDS IN FDI - 2011
G l o b a l F D I i n 2 01 1 a t $ 1 . 5 t r i l l io n
 FDI inflows rose 16%, but remained 23% below their 2007 peak
 Developing and transition economies respectively accounted for 45% and 6% of global FDI
FDI inflows, global and by groups of economies, 1995-2011 (Billions of dollars)
Source: World Investment Report 2012, United Nations Conference on Trade and Development
4

6. TIMOR-LESTE NOW MEASURES FDI
 The Balance of Payments (BoP)

7. Countries that have done well
in attracting FDI

8. SOME RELATIONSHIP BETWEEN GOOD
POLICIES AND FDI.
 Examples are
Singapore, the UK, US,
and Ireland.
 But many other factors
including market size,
political stability,
quality, level of
economic development,
are likely to better
explain the relationship

9. WHAT DO THEY HAVE IN COMMON?
1. Global Image and Reputation
2. Good investment Climate
3. Effective National Investment Framework
4. Government institutions pulling together in
a coordinated fashion
5. Effective investment institutions that
investors can trust
6. Proactive Sector-Focused Investment
Promotion Efforts

10. WORLD BANK “INVESTING ACROSS BORDERS”
SUGGEST HOW COUNTRIES CAN IMPROVE THEIR FDI
COMPETITIVENESS. (HTTP://IAB.WORLDBANK.ORG)

11. ATTRACTIVE DESTINATIONS SEEK TO
DELIVER WHAT MOTIVATES INVESTORS

12. WHAT GENERALLY MOTIVATES
INVESTORS?

13. WHAT GENERALLY MOTIVATES
INVESTORS?
Deloitte &

14. INVESTOR DECISION DRIVERS VARY BY
SECTOR, COMPANY AND CONDITIONS

15. AND ATTRACTIVE DESTINATIONS ARE PROACTIVE, AND
STRATEGIC – The Investment Promotion Cycle
Investment
Climate
Strategic investment
Policy
Input Image promotion is the
Building
&
process of attracting
• Targeting branding
new foreign and mobile
Systematic competitive
Feedback
sectors/
domestic investment
opportunities Lead / through improvements
Investment
• Proactive Generation in the investment
promotion and
Aftercare / facilitation climate and by
Investor
Development marketing a location’s
Formulating
Development potential to private
Investor
Servicing
Package
investors
Effective promotion requires commitment and proactive effort
15 Investment will not “just come”

16. A FRAMEWORK FOR EFFECTIVE
INVESTMENT PROMOTION
Improved
FDI friendly
Investment
policies
climate
Improved
Investor
Feedback
Services
Loop
Investment
Jobs

17. The Government & Strategic Investment Promotion
Sets in place policies to
create a positive
investment climate
Sets an economic Stimulating
development strategy Private
Government
and develops underlying
competitiveness investment
Conducts investment
promotion and engages
stakeholders
17

18. LINKING FDI & INVESTMENT
PROMOTION STRATEGIES
Investment
Target sectors Law and Government
Regulations
FDI
Labor Force Institutional Investment
Strategy Regulation
Skills Arrangements
Investor
Infrastructure Admin. Investment
facilitation
Efficiency Promotion
Strategy
Investment
Promotion Investment
Plan Generation
Lead Investment
Promotion
Policy Investor
Intermediary Aftercare
Advocacy

19. Role of Investment Promotion
Is Investment Promotion important? Yes, studies have shown that
there are positive correlations between Investment Promotion
activities and net investment. (Wells and Wint, 1990; Austrade 1996;
Wells, 1999; Morisset, 2004; Jovorcik and Harding – Oxford
University 2011))
A recent University of Oxford
study has shown that :
Servicing investors’ information needs • $1 spent on investment
promotion increases FDI
inflows by $189
Strengthening a location’s image
• $78 dollars spent on
investment promotion
Targeting and generating investment creates one additional job by
a foreign affiliate.
Torfinn Harding and Beata S. Javorcik, “Roll out the
Advocating for policy reform for a better Red Carpet and They Will Come: Investment Promotion
and FDI Inflows,” The Economic Journal, vol. 121, issue
business enabling environment 557 (December 2011). 19

20. ADDITIONAL SLIDES

21. FOREIGN OWNERSHIP RESTRICTIONS

22. THE COSTA RICA INTEL
CASE STUDY

23. COSTA RICA - 1990S - FDI FALLING AS APPAREL
SECTOR LOST STEAM
FDI to Costa Rica was
falling as Apparel lost
steam due to increased
number of competitors

24. COSTA RICA - CHOOSING FDI SECTORS
HIGH PRO-ACTIVE
REACTIVE
“High” technology
Electronic
Apparel Compo-
nents
Impact Electric Target Sector
Compo-
& Segments
nents
Congruent with
Agro-
country’s SWOT
industry Medical
Devices ?
Source: Ansoff, Porter, Infinitum
LOW Potential success HIGH

25. COSTA RICA – INVESTMENT
PROPOSITION
Costa Rica
Educated Labor Force
Reasonable Costs
Incipient base in Electronic
electronic industry
Components
CINDE Competitivenes
Focused promotion s
an facilitation
Lower costs
Good practices
Proximity to big
Overseas office in markets
New York
Not proven,
emergent

26. COSTA RICA’S TEAM TO LAND INTEL
Ministry of
Environment
And Energy
I.C.E.
Power and
Telecommunications CINDE NY
Jose Maria Figueres
Direct Involvement
Ministry of
President
Public Works
And Transport.
Ministry of
Foreign
Ministry of Finance
Trade
CINDE CR
Ministry of Science
and Technology
Ministry of
Education
Source:
ITCR
“Attracting High Technology Investment”
National Learning Debora Spar-Harvard Business School-IFC-World Bank
Institute

27. WHY DIDN’T INTEL DROP COSTA RICA IN THE
PROCESS?
 Making INTEL know they were wanted
 Impressing INTEL at every step of the decision making process
 Responding to INTEL’s requirements in a fast, highly
professional manner
 Being transparent – from the very first contact
 Maintaining confidentiality of the project, only shared with those
who needed to know in the government. The press was fooled,
then alerted NOT to disclose the news before INTEL made it
of ficial.
 Knowing their customer - Researching INTEL and transferring
this knowledge to all involved
 Consistency of approach and partnering at all levels of
government
 Commitment at the highest level possible - The President
 Coordinating across multiple institutions to deliver against very
aggressive deadlines and high standards

28. FDI INFLOWS TO COSTA RICA 1980-
2005
Intel: catalyzer for FDI in
Costa Rica
Intel construction started
Source: Infinitum, BCCR, Intel
29

29. In 1996, Intel announced decision to
construct a $300 million semiconductor
assembly and test plant in Costa
Rica.
2,500 direct jobs
Doubled Costa Rica’s Exports
*****
By 2005 Intel had invested $770 million
in Costa Rica