Putting it to Work in Developing Countries - Nathan Associates

Where governments deem incentives necessary,
they should, at a minimum, define the package
carefully—leaning perhaps to time-bound and
moderate tax incentives rather than outright
subsidies or other cash outlays—and subject it
to a rigorous cost-benefit analysis. And regardless
of the particular package, specialists stress
that “non-tax elements of the investment climate
are far more important than tax incentives in
determining the level and quality of investment.”
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DIRECT ACTION—
PROMOTING FDI
An attractive investment climate is nearly always
a prerequisite for attracting FDI, but for most
countries it is not enough. They must promote
investment directly. The investment promotion
function may be particularly important for the
least developed countries. 31 Investment promotion
took root in developing countries after the
debt crisis of the 1980s and acceptance of the
notion of “Marketing a Country.” 32 The number
of investment promotion agencies (IPAs) surged
in the 1990s with the emergence of the transitional
economies of Eastern Europe and the creation
of new nations from the former Soviet
Union. As of 2006, the World Association of
Investment Promotion Agencies (WAIPA) had
204 member agencies, about 75 percent from
developing countries.
PROFILE OF INVESTMENT PROMOTION
AGENCIES
In most developing countries, IPAs are government
entities that report to a ministry, though
often without being a part of it and operating
under a separate board of directors. 33 IPA boards
are composed of public and private sector representatives,
including representatives of training
and educational institutions and business associations.
IPA staff, who may not necessarily be
civil servants, may be paid higher salaries than
counterparts in the civil service and have had
careers in government, though some have private
sector experience.
Government typically supplies the vast bulk of
IPA funding, but many agencies are trying to
supplement this with revenues from other
sources, such as for-service fees and donor
agency funds (Table 5-2). When clients do pay
fees, they are usually for business services, legal
assistance, help in preparing feasibility studies,
and support in identifying qualified local personnel.
Most IPAs continue to resist fee-for-services
as contrary to their marketing role.
According to data from 2000, annual budgets
for the IPAs of least developed countries averaged
$285,000; of economies in transition,
Table 5-2
Investment Promotion Agencies—Income Sources and Expenditure Use of Funds
Income Sources % Expenditure Use %
Government funding 73 Image building 38
Revenues earned from fees 10 Investment generation 29
International aid 9 Investor services 25
Other sources 6 Policy advocacy 8
Private sector 2
Total 100 Total 100
Note: Income sources from UNCTAD, The World of Investment Promotion at a Glance—A Survey of Investment
Promotion Practices, ASIT Advisory Studies No. 17, Figure 4, p. 4.
SOURCE: Nathan Associates based on UNCTAD data.
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