Context
New global shocks could threaten investment in unprecedented ways with repercussions for economic growth and development. Global foreign direct investment flows plummeted by 40% immediately following the COVID-19 shock, yet the recovery has been much slower for developing countries. The pulse survey of multinational corporations (MNCs) conducted during April-June 2022 reveals that nearly 30% of investors plan to reduce their investments in the host developing country in the coming year. Slow recovery and declines in North-South flows of greenfield FDI foreshadow weaker investor confidence and shifting global production patterns. In the post-pandemic world, several new challenges to investment are emerging, such as
- The pandemic, combined with conflicts around the world are signaling the onset of an unprecedented global recession.
- The changing world environment with political polarities
- Trade and GVCs, which were often the drivers for FDI, are reshaping and adjusting to new political and economic realities.
The current global economic landscape demands the development of coordinated, non-fiscally taxing solutions to strengthen countries¡¯ investment climate and develop resilient for future shocks. For the past three decades, the private sector has been at the forefront of leading economic transformation around the world. Integration with global markets and enhanced investment competitiveness has contributed to the unprecedented growth of many economies.
Given the current context, governments are turning to the World Bank for advice on policies to enable and link foreign and domestic private sector with the dynamism generated by cross-border trade and investment patterns, and support resilience and recovery of their economies in a resilient and inclusive way.
The Global Investment climate supports client countries in creating an enabling business environment for all firms, attracting new sources of investment and maximizing spillovers from foreign direct investment, thereby contributing to healthy firm dynamics, economic transformation and job creation.
Strategy
By leveraging a comprehensive approach that addresses the legal, regulatory, administrative and institutional barriers affecting all phases of the business and investment lifecycle, the World Bank helps countries establish a competitive investment climate that is favorable for stimulating investment for business-led growth. Capable of mobilizing a wide range of World Bank Group instruments¡ªincluding advisory services and analytics (ASAs) and diverse lending products (DPFs, P4Rs and IPFs)¡ªto help developing countries, our experts on business environment and investment policy and promotion deliver integrated IC solutions founded on three pillars:
- Driving Evidence-Based Reform: Global analytics and benchmarks such as the World Economic Forum Global Competitiveness Index, Doing Business, WBG enterprise surveys, the Global Regulatory Risk Database, or Women Business and the Law have put business environment and investment policy reforms at the forefront of policy-makers¡¯ agendas and created strong demand for support in this area. Identifying sources of entry barriers, market distortions, assessing binding constraints to firms, and quantifying potential impact of policy reforms have been enabled through the development of the latest generation of investment climate diagnostic tools. Underpinning all investment climate interventions are a well-developed set of diagnostic and analytical instruments, applied research, and strong knowledge of good practices and reform experiences. This knowledge set allows our teams to mobilize expertise on a wide range of policy and regulatory issues, and create integrated, multi-instrument solutions that are tailored to the needs and demands of clients.
- Fostering Business Competitiveness: Unlocking private sector-led growth is contingent on a country¡¯s ability to establish a regulatory and institutional framework that enables productive local and foreign firms to invest, form and grow, both domestically and internationally, and non-viable firms to exit so resources are allocated efficiently within and across sectors. Government policies and regulations play a decisive role in stimulating business activity and enhancing market contestability. With this aim, IC solutions are designed to improve the regulatory environment for foreign and domestic firms along all phases of the investment and business lifecycle. By supporting the implementation of transparent, inclusive, predictable and efficient policies and regulatory practices, the Investment Climate team helps governments unlock potential for developing the private sector, and incentivize firms to invest, compete and grow, which in turn creates productive jobs.
- Expanding Investment Opportunities: Attracting FDI helps to link a country¡¯s economy to global value chains and facilitates economic upgrading. FDI brings investment, jobs, increased exports, supply chain spillovers, new technologies and business practices to countries. While the benefits of FDI are well recognized, they do not flow without a conducive policy, legal and institutional environment. In a global landscape deeply impacted by the COVID-19 pandemic yet still subject to rapid technological change and political uncertainly, countries must refine their value propositions as investment locations. In addition, to fully capture the benefits of FDI, a country requires clear and effective implementation of investment strategies and policies. By leveraging a comprehensive approach that addresses the legal, regulatory, procedural and institutional barriers affecting all phases of the investment life cycle, the Investment Climate team helps countries establish a competitive investment climate that is favorable for attracting, retaining, and expanding sustainable FDI.
Given that the successful design and implementation of investment climate reforms requires the coordinated effort of many different line ministries and agencies, our teams support governments to design investment climate reform programs in the context of a broader competitiveness agenda; determine priority areas for reform in the short, medium and long terms; set clear targets with measurable results; and strengthen the institutional capacity of public-private dialogue mechanisms and inter-ministerial reform committees.
Results
- In Bangladesh, the government introduced a broad simplification program including cost reductions for connecting to the electricity grid and a one-stop shop (OSS) for investors. The reforms resulted in over $721 million cost savings for businesses and citizens. Over 1,200 firms have benefited from the OSS to date.
- In Ecuador, the team supported the introduction of a new simplified stock corporation, a more flexible legal form tailored to small- and medium-sized companies. Within two months, over 500 firms were created under the new type, 30% of all companies incorporated during that time period.
- Ethiopia opened six new sectors for FDI. Within two years of the reform $96m in FDI was directly generated. Ethiopia¡¯s Investment Commission also established a mechanism to address investor grievances prior to their escalation to international disputes. This has led to USD 5.4 million FDI retained to date.
- In Guinea, an online supplier marketplace platform was established to address the low levels of local supplier participation in the mining sector. 883 domestic companies (111 women-owned) registered on the platform. 77% of requests for proposal posted have been awarded to SMEs registered on the platform.
- In Iraq, the establishment of an investor grievance mechanism within the Basra Investment Commission led to USD 220 million in FDI previously at risk of divestment being retained.
- The removal of entry restrictions in Myanmar, through a new negative list opening 70 sectors to full foreign ownership and the reduction of FDI screening through a unified investment law, led to a six-fold increase in approved FDI projects between FY13 and FY16, from USD 1.4 billion to USD 9.5 billion.
- In Saudi Arabia, the team worked with the Ministry of Commerce and Investment to lift legal barriers to women¡¯s economic participation and pass a historic reform package which introduced freedom of travel and legal equality in employment and pensions, as well as removed the obedience provision and allowed women to be head of household among others. Over 5 million women over 21 years old are benefiting from the reforms and the number of women-owned businesses increased by 50%.
- The first phase of a supplier development program in Vietnam has led to 70% increased capacity of SMEs through application of new standards and management tools, a 50% increase in profit and turnover, 42% established new connections with MNE buyers of which 9% became formal suppliers to MNEs.
- The Western Balkans Investment Policy and Promotion Project provided support to the 6 economies of the Western Balkans - Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia - with harmonizing their investment policies and implementing a regional investment promotion initiative. The project resulted in 10 legislative and institutional investment climate enhancing reforms, including the adoption of regionally aligned standards for international investment agreements, and the generation of over $130 million in FDI for the region, creating more than 3,000 jobs, including 2,000 for women.
