Foreign investment is vital to the development of any country. It is even more critical to the growth and long-term future of developing countries. Quality foreign investment can help a country to:
- Access new products, technologies, and production methods.
- Acquire access to global markets.
- Receive new capital for development projects.
However, one of the most significant problems for today’s developing countries is attracting quality foreign investments. There are several reasons (which we will not delve into today) why it is challenging for these countries to attract foreign investments.
Regardless of these hindrances, there are certain things countries can do to make foreign investment more likely. They include:
Provision of Transparent, Open, and Reliable Business Conditions for Foreign and Local Businesses
One of the most crucial strategies for attracting foreign investment is creating attractive and fair environmental conditions for local and foreign businesses. This means providing a legal system that relies on transparent and clear policies.
The business environment should include reliable legal frameworks where contracts and agreements will be honored by the government and local private businesses under all circumstances. In addition, the government must also ensure that there are no political risks and excessive tax burdens that will inhibit foreign investment.
Establishment of an Investment and Trade Promotion Authority (IPA)
An Investment and Trade Promotion Authority (IPA), also known as an Investment Promotion Agency (IPA) or Foreign Investment Department, is an organization that aims to attract foreign investments and manage foreign capital flows. It has the responsibility of creating and implementing a country’s investment promotion strategy.
The agency’s primary duty is to lead the domestic economy to provide a highly competitive infrastructure and provide access to skilled workers, engineers, technicians, and managers that are needed to ensure that the country attracts the right kind of investment.
Following the investment, it is also engaged in after-investment care, recognizing the potential for further investment.
Establishment of the Infrastructure Necessary to Attract Quality Investors
A country must ensure that it has the infrastructure to attract foreign investments that positively impact its economy.
In addition to having sufficient close-by transport facilities like airports and ports, a reliable and adequate supply of energy, and the ability to train highly qualified employees – all of these needs to be implemented in close collaboration with investors.
Facilitating FDI Spillovers into the Local Economy
Business ventures led by managers who have experience working in multinational companies are best-placed to succeed. These individuals have spent time observing and benefiting from the latest trends. They have learned how to adapt, innovate, and take calculated risks in global markets.
Therefore, these managers are skilled in creating international business practices and the culture of multinational companies – thereby increasing the capacity of the domestic economy to compete in global markets.
Welcoming First-time Foreign Direct Investors
Developing countries need to ensure that they welcome first-time foreign investors. The reason is that these investors are more likely to create links with domestic businesses and help to internationalize the host country.
Conclusion
The most important thing for attracting foreign investments is creating an attractive business environment and transparent policies that provide security and transparency. There must be an incentive before foreign investment can take place in any country.
Foreign investors are business people who only want to put their money where they see good business opportunities and the potential for significant returns.
