Foreign direct investment is the lifeblood of global capitalism. Where an organisation decides to invest, and often where it decides not to, attracts considerable attention from governments, trade bodies, the media and the public. Finance Director Europe speaks to Arda Ermut, president of the World Association of Investment Promotion Agencies, about the multiple factors that determine where and when investments happen.
There has been increasing uncertainty in global socio-economics and geopolitics so far this year. The slowdown in China, the fight against IS, the drop in oil and commodity prices, the souring of relations between Russia and the West, the UK's EU referendum, to name but a few, will give decision-makers pause for thought when considering where to spend their cash.
Arda Ermut, president of the World Association of Investment Promotion Agencies (WAIPA) shares his thoughts on these troubling times.
Finance Director Europe: The global geopolitical and economic picture has changed dramatically since we last spoke to WAIPA. How have these market forces changed the picture for CFOs considering foreign investment?
Arda Ermut: It goes without saying that investors and CFOs alike have been leaning towards conservatism and caution. This does not mean that investors have not taken new strides and entered new markets and sectors - they have - but it is also true that foreign direct investment (FDI) is well below its global potential. The geo-political crisis in the region and falling oil prices are contributing to a somewhat turbulent landscape, and this has always made investors use the wait-and-watch approach. Despite this caution, WAIPA has geared up to create a push-factor for investors, especially in emerging economies, because we feel that investment is not just necessary but also largely secure because of growing market demand and incentivised business environments.
Which countries and regions have become more or less attractive for FDI?
Emerging economies such as India and Vietnam were clear winners. Due to crumbling commodity prices, the big emerging markets in Russia and Brazil largely tumbled. So, it has been a strange year in terms of economic growth led by FDI, but it supports our overall trend that the emerging markets are where the growth engines are churning. We are also looking forward to the previously slow growth in the Balkans picking up, and WAIPA is focusing on these regions, as well as helping formulate better policy frameworks for the regions that are slowing down.
Since taking up the role of president, what changes have you implemented to further strengthen the role played by WAIPA?
WAIPA's structural integration was first on the agenda. I ensured that WAIPA not only works in tandem with its powerful global representation of steering committee members, but also engages and leverages with its influencers at the consultative committee comprising the United Nations Conference on Trade and Development (UNCTAD), the United Nations Industrial Development Organization (UNIDO), the Organisation for Economic Cooperation and Development (OECD) and others.
In addition to this, I have put a renewed focus on internal and external communication. WAIPA has a better liaison with members and has also gotten to engage on public platforms such as Twitter.
What ambitions and goals does the organisation have for 2016?
We want to amplify our members' voices; we want their stories to come to the forefront; and we want to chronicle their processes of investment promotion that brought them the most success, so that it serves as inspiration. We also feel it is time to have a more inclusive approach to our work, not just in terms of emerging and least-developed countries, but also in terms of including a more gendered perspective.
We are also conscious that our work has a sustainability angle to it, so we are taking steps in harmony with sustainable development goals. Our stronger collaboration with our consultative committee members puts more substance into this.
What are the challenges faced by WAIPA when trying to martial the efforts of investment promotion agencies that, while cooperating, are also essentially competing against one another for investment opportunities?
I think we are past that stage because almost all investment promotion agencies (IPAs) understand that there are far more dividends to cooperating than competing when it comes to learning the trade. So, our challenge is not just to get them to cooperate, but to cooperate with effectiveness.
When we advocate for more prioritisation of IPAs within their own governments, there is some resistance because of competing options, but we keep pushing and hope that, over the years, governments will understand that FDI is the real driver of growth and prosperity, and IPAs are one of the most important bridges to help receive those.
How do you see the investment picture changing in the next 12 months, given the uncertainty over the performance of the global economy?
I think there will be a sectoral focus on investment and it will be geared towards the emerging and least-developing markets. If the global political crisis abates, these countries have most to gain from stability. Though I have no financial crystal ball, if the geopolitical situation remains in control in the emerging regions, I feel that 2016 will put the global markets back in their lead positions.