Case Studies

Competing for FDI
Inside the operations of four national investment promotion agencies A MIGA-FIAS RESEARCH PROJECT
INVESTING IN DEVELOPMENT SERIES Multilateral Investment Guarantee Agency
2005
Copyright 2004 The World Bank Group/MIGA 1818 H Street, NW Washington, DC 20433
All rights reserved Manufactured in the United States of America First printing December 2004 Available online at www.ipanet.net/investing_in_development
Printed on recycled paper
For more information contact: MIGA Operations 1818 H Street, NW Washington, DC 20433 t. 202.458.2076 f. 202.522.2650 See also www.fdipromotion.com The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to MIGA Operations at the above mentioned address.
The Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group was established in 1988 to promote the flow of private foreign investment to developing member countries. MIGA offers political risk insurance coverage to eligible investors for qualified investments in developing member countries. MIGA also offers technical assistance programs to develop and implement effective strategies for attracting and retaining foreign direct investment. This hands-on technical assistance focuses on three primary areas: dissemination of information on investment opportunities and business operating conditions in developing member countries through online services; capacity building of the organizations and institutions involved in the promotion of foreign investment; and, investment facilitation activities supporting the efforts of developing countries to identify and attract investment. The Foreign Investment Advisory Service (FIAS) advises developing country governments on how to attract and retain foreign direct investment, and maximize its impact on poverty reduction. Since its founding in 1985, FIAS has advised more than 130 countries in almost 600 projects. FIAS is a joint service of the International Finance Corporation (IFC) and the World Bank. It is funded by these institutions and through contributions from donors and clients. J.E. Austin Associates of Arlington, Virginia conducted the field research and contributed to the development of the case histories presented in this publication.
Competing for FDI

Inside the operations of four national investment promotion agencies A MIGA-FIAS RESEARCH PROJECT
CZECHINVEST UGANDA INVESTMENT AUTHORITY FIPA TUNISIA PROESA EL SALVADOR
INVESTING IN DEVELOPMENT SERIES Multilateral Investment Guarantee Agency 2005
ACKNOWLEDGEMENT
MIGA and FIAS collectively acknowledge the invaluable contribution of the four subject investment promotion agencies, CzechInvest, Uganda Investment Authority, FIPA Tunisia and PROESA, in opening their organizations for this project, and in sharing their stories. Through their officials cooperation and insights, we were able to delve deep into their organizations to help document their successes for the benefit of others in the field of investment promotion. A special note of appreciation is extended to the participating board members and chief executives, Mr. Jan Havelka and Mr. Martin Jahn at CzechInvest; Dr. William Kalema and Dr. Maggie Kigozi at Uganda Investment Authority; Mr. Abdessalem Mansour at FIPA Tunisia; and Mr. Quintanilla Schmidt, Mr. Miguel Lacayo and Ms. Patricia Figueroa at PROESA, whose vivid commentary and practical advice helped bring this project to life.
This series of case studies is intended to stimulate discussion and learning regarding investment promotion agencies. It is not meant to provide complete or comprehensive case histories, but rather to highlight important aspects relevant to investment promotion. Neither the Multilateral Investment Guarantee Agency nor Foreign Investment Advisory Service are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, site selection, or other professional advice or services, and shall not be responsible for any loss sustained by any person, company or organization that relies on this publication as a substitute for such professional advice or services. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
Table of Contents
Introduction .......................................... 7 I. CzechInvest: Building a Competitive Product Package for Attracting FDI...........9
Introduction ................................................................ 11 Background................................................................. 12 CzechInvest ................................................................ 13 The Strategy ................................................................ 15 The Czech Offer.......................................................... 16 Fulfilling on the Offer ................................................. 19 Next Steps .................................................................. 22 Questions for Discussion .......................................... 23 Endnotes ..................................................................... 24 Exhibits 1. Economic Indicators of the Czech Republic ...... 25 2. Summary Q&A .................................................... 28 3. FDI Flows into the Czech Republic .................... 29 4. Mandate and Governance Structure .................. 30 5. Budget and Technical Assistance ....................... 31 6. Organizational Structure and Staffing ................ 33 7. Human Resources at CzechInvest...................... 36 8. Scoring System Used to Monitor Foreign Offices .................................................... 38 9. Image Building Among Investors ....................... 39 10. Impact Statement by CzechInvest ...................... 40 11. Annual Targets of the Marketing Department ... 41 12. CzechInvests Strategy ........................................ 42 13. Investment Mediated by CzechInvest ................ 45
II. Uganda Investment Authority: Executing a Turnaround Strategy to Focus on Attracting FDI ........ 47
Introduction ............................................................... 49 Background ................................................................ 50 Uganda Investment Authority................................... 52 The Turnaround Strategy........................................... 53 Implementation Approach & Activities .................... 55 Strengthening the FDI Support Network ................. 57 Next Steps.................................................................. 58 Questions for Discussion ......................................... 59 Endnotes .................................................................... 61
Exhibits 1. Economic Indicators of Uganda ......................... 63 2. UIAs Investment Record .................................... 66 3. Mission and Governance .................................... 67 4. Organizational Structure, Staffing and Training ......................................................... 68 5. Budget and Sources of Funding ......................... 73 6. Performance Measurement ................................ 75
III. FIPA Tunisia: Shaping the IPA to Promote Increased Market Access ................................. 77
Introduction ............................................................... 79 Background ................................................................ 80 FIPA Tunisia ............................................................... 82 The Tunisian Advantage ............................................ 82 The Client Service Infrastructure .............................. 84 Next Steps.................................................................. 87 Questions for Discussion ......................................... 87 Endnotes .................................................................... 89 Exhibits 1. Economic Indicators of Tunisia .......................... 91 2. Mandate and Governance Structure .................. 94 3. Organizational Structure, Staffing and Training ......................................................... 95 4. Budget .................................................................. 99
IV. PROESA of El Salvador: Creating a Positive Image Among Targeted Foreign Investors ......101
Introduction ............................................................. 103 Background .............................................................. 104 PROESAs Strategy: Focus on Image Building ....... 105 Turning Opportunity into Investment .................... 107 Measuring Success ................................................. 108 Effective Image Building ......................................... 109 Next Steps................................................................ 110 Questions for Discussion ....................................... 111 Endnotes .................................................................. 113 Exhibits 1. Economic Indicators of El Salvador.................. 114 2. Mandate and Governance Structure ................ 117 3. Organizational Structure and Staffing .............. 118
Introduction
The practice of investment promotion, as those experienced in the field can attest, is at once a science and an art. As a science, it requires a systematic, empirical approach to analyzing and articulating a locations strengths, to evaluating, finding and attracting investors, and then to monitoring progress against quantitative goals. This is, of course, a highly clinical perspective of the process, which tends to underplay the qualities inherent in the other side of the equation. Without the creativity and imagination required to assemble an operation, communicate a compelling promotional message, adapt to market dynamics, manage within limited and mercurial budgets, engage support among multiple constituencies and envision a prescient plan and development outcome, the science of investment promotion is merely a theoretical exercise. The reality in todays globally competitive environment is that the effective investment promotion agency (IPA), through a unique interplay of both types of organizational strengths, is able to both create and convey competitive advantage in its efforts to attract foreign direct investment (FDI). The series of case studies presented here is based on information gathered for a project recently undertaken by the Multilateral Investment Guarantee Agency (MIGA) and Foreign Investment Advisory Service (FIAS), which set out to document qualities evident in successful IPAs. The premise underlying this project was that it might be possible to associate common characteristics among IPAs with enhanced competitiveness, of the agencies as service organizations, and of the locations as products evaluated by investors. In assisting developing countries in their efforts to increase foreign direct investment, MIGA and FIAS advisors were often called upon to suggest working models of investment promotion that could be replicated. While not expecting to find one resolute formula for success, the research team aimed to augment the World Bank Groups policy and implementation tools with real-life examples of organizational qualities and program elements. This publication explores the characteristics of four investment promotion agencies: the roles they assume, the challenges they face, their histories, mandates, leadership, structures, strategies, and activities. Their examples are drawn from interviews conducted in the field at national-level IPAs, each in a different developing region, and each selected based on its ample history and substantial FDI to help illustrate several years of operation. Researchers were commissioned to visit and collect information from CzechInvest in the Czech Republic, Uganda Investment Authority (UIA) in Uganda, the Foreign Investment Promotion Agency (FIPA) in Tunisia and PROESA in El Salvador. The information they collected was not confined to a precise period of time, or preconceived concept, but rather was wide-ranging and open-ended to best capture the unique example of each agency. The results are presented as individual case studies, each focused around a particular strategy or initiative that characterizes the agencys critical path, and helps to highlight facilitative organizational qualities. The first case study traces CzechInvests growth from start-up marketing entity to multi-service development agency through the evolution of its product offer for foreign direct investors, which was continually refined over a ten-year period to meet the requirements of greenfield manufacturers. In Uganda, UIA faced the ultimate defining moment:
INVESTING IN DEVELOPMENT
to turn the agency around following a setback in management leadership and confidence among donors. UIAs bold strategy transformed the fundamentals of the operation, resulting in a redirection in the focus, funding, management, structure and activity of the organization. At FIPA Tunisia, a free trade agreement with the European Union helped crystallize Tunisias competitive approach as an FDI location and shape FIPAs strategic direction and activities, including an extensive product-benchmarking program. In El Salvador, newly established PROESA introduced the country and itself to targeted international investors with an aggressive image-building campaign, El Salvador Works, which promoted the countrys hard working people and post-conflict, improved business climate. Common themes are evident throughout the cases in terms of process and drivers, for instance: building the necessary investor policy framework, garnering public and private sector support for the IPA, and marketing the country based on targeted investor requirements. While each case is a decidedly different situation and stands on its own, it is useful to see how the various organizational structures, management styles and strengths of both an analytical and more qualitative nature supported the agencies strategic objectives. Ultimately, success in attracting FDI reflected each IPAs ability to leverage both its natural and acquired strengths to adapt to the needs of investors, the global market for FDI, and national goals for economic growth.
Building a competitive product package for attracting FDI
THE CASE STUDY OF CZECHINVEST
This case study traces the growth and evolution of CzechInvest through the development of its product offer to attract greenfield manufacturers. Launched as a small marketing office in 1993, shortly after the Czech Republics emergence from a nationalized economy, CzechInvest first created an infrastructure for its product development, including a framework, organization and operational culture conducive to offering its product, a base of support and funding for its programs, and effective channels for regular input from investors. This building process established a foundation for the continual product adaptation that characterizes the 10-year experience of CzechInvest highlighted in this case study. The Czech offer would eventually encompass several well-conceived products and services, each designed to incrementally enhance the offer by addressing a key area of competitiveness. The case of CzechInvest underscores the importance of building a strong foundation to support and maintain a competitive product offer, especially in a dynamic global market for foreign direct investment (FDI). It demonstrates how effective programs - the components of the product offer - are rooted in the priorities and requirements of targeted and installed investors. Finally, this case study provides lessons in strategic product development, illustrating how CzechInvest built a product package that improved the countrys competitiveness for FDI, and how that product package was designed to address the Czech Republics longer term economic development goals.
CZECHINVEST
10
CZECHINVEST
Introduction
In December 2001, the Japanese automotive giant Toyota Motor Corporation, together with the French automotive company, PSA Peugeot Citroen, announced the Toyota Peugeot Citroen Automobile project a joint factory to manufacture an entirely new class of passenger car in the Czech Republic. With an investment budget of e1.5 billion, this venture represented the largest investment project in Central Europe. The investment was expected to generate 3,000 new jobs within the Czech economy. The investing companies had considered 50 sites in Europe, and the final shortlist also included France, Spain, Germany, Hungary and Poland. Among the factors leading to the selection of the Czech Republic was the centralized, flexible and transparent approach orchestrated by CzechInvest, which had been awarded the European IPA (investment promotion agency) of the Year in both 2000 and 2001. The ten-year story of CzechInvest (CI) is one of transformation from a small marketing entity to a multi-service development agency. Awarded the Best IPA in the EU Accession Countries, the Best Marketing Campaign by an IPA, the Best Greenfield Investment by an IPA, and the Best Deal Facilitation by an IPA, CI had earned industry recognition as a leading IPA with a proven track record among investors.1 Over ten years, the Czech Republic saw the completion of 235 foreign investment projects, mobilizing US$7.3 billion in FDI and creating 67,225 jobs. Virtually all of these projects were in manufacturing, concentrated in three sectors: automotive, electronics and precision engineering. Reminiscent of its pre-Second World War position among the worlds top ten production economies, the Czech Republic had emerged from a nationalized system to reassert its industrial prowess in manufacturing, a Czech tradition dating back to the Hapsburg Empire. By 2003 the Czech Republic was host to more than 1,200 FDI-backed manufacturers in Bohemia and Moravia, producing 65-70% of Czech manufactured exports. Underlying the Czech Republics remarkable re-entry into global production was CzechInvests commitment to build a competitive greenfield product package to attract FDI from manufacturers. The refinement of the CI product over the years illustrates the agencys drive to meet the requirements of investors evaluating top-tier manufacturing locations throughout Europe and worldwide. To address underdeveloped aspects of the Czech business environment, the CI product package evolved to incorporate several major programs: a regional network and foreign offices, investor incentives, industrial zones, property development, and supplier development. CIs building process provides relevant lessons for IPAs at various stages of their product and offer development. As a start-up agency, CI first had to create an infrastructure for product development, including a framework, organization and operational culture conducive to offering its product, a base of support and funding for its programs, and effective channels for regular input from investors. Ultimately, the example of CzechInvest arguably is as much about the foundation that supports continual product adaptation in a dynamic market, as the actual components of the CI product package and related decision points along the way. This case study traces the CzechInvest experience through the development of its Czech offer, the package of products and services geared to greenfield manufacturers. It describes the main components of the CI product package, and key factors that have impacted the evolution of these components over the life of the
CZECHINVEST
11
The economic challenges of the Czech Republic include: r r r r r r Successful integration into the EU Enhancing competitiveness of the Czech industry (mainly SMEs) Reducing bureaucracy Improving an inefficient judicial system and law enforcement Increasing the slow pace of fiscal and economic policy reforms Public finance, tax reforms and pension fund reforms (key to EU accession) Addressing the high unemployment rate of 9.6%
agency, from CIs initial role as an FDI marketing office to its current expanding focus on the development of Czech business overall. The example of CzechInvest is not intended to suggest an ideal product configuration. Rather, this case study presents common issues IPAs face in executing on their product strategies within inherent constraints, and while balancing the needs of investors, government, and other stakeholders. The Czech offer demonstrates the successive layering of wellconceived individual programs each designed to incrementally enhance the offer by addressing a key area of competitiveness. The example of CzechInvests product offer can be used to help IPA managers consider 1) the strategic decisions, structure and components that contribute to effective product package development, 2) the IPAs role in building a product package that improves the countrys competitiveness among a defined type or sector of investor, and 3) the impact of product package development on longer term economic development goals. In particular, this case study addresses CIs recent product innovation as a reflection of the agencys ability to accommodate investors within its overall objectives for economic development.
Background
Following the Velvet Revolution in November 1989, the Czechoslovak Federation underwent major social and political changes, and the Czech Republic became a sovereign state in 1993. In 1995 the Czech Republic was granted the status of associate member of the EU, applied for full membership in 1996, and was officially accepted into the EU on May 1, 2004. The Czech Republic emerged from strict central planning, a bias towards heavy industry and a trade orientation geared towards the Soviet Union and COMECON. Although regarded as a successful transition economy, the Czech Republic experienced fiscal deficits and current account imbalances in the mid-1990s. Fiscal crises and political tensions resulted in the fall of the ruling coalition by the end of 1997. The new cabinet favored privatization with the participation of foreign capital, in contrast to the Czech way of privatization that took place during the 1990s; using the voucher method, state property had been privatized in the hands of Czech citizens or legal entities. This approach had led to weak corporate governance and did not establish the incentives for restructuring Czech industry. Privatization of the banking sector was also initiated on a selective basis. In 1998, a system of incentives was introduced to attract foreign capital into the country for greenfield projects.2 The economy began to recover in 1999 and experienced modest but sustained growth rates at 3.3% in 2001 and 2.5% in 2002. Inflation fell to 1.8% in 2002, the lowest level since economic transition, and the foreign trade deficit decreased from US$3.1 billion in 2001 to US$2.2 billion in 2002. However, unemployment rates increased from about 4% in 1996 to over 9% in 2002. (See Exhibit 1: Economic Indicators of the Czech Republic.)
Foreign Direct Investment Record

The FDI inflow to the Czech Republic in 1993 was a modest US$0.9 billion increasing to US$1.65 billion in 1994. The privatization efforts in 1995 caused a spike in FDI per year to US$2.57 billion. After declining, FDI has risen over time to over $8 billion in 2002. (See Table 1-1 and also Exhibit 3: FDI Flows into the Czech Republic.)
12
CZECHINVEST
CzechInvest
In 1993, the Ministry of Industry and Trade appointed Jan Havelka as the chief executive of the recently formed agency, CzechInvest.3 A former project manager at the Kuwait Investment Office, and previously an advisor in Slovakia to the Minister of Foreign Affairs, Havelka was experienced working with both investors and policymakers. He faced immediate and fundamental challenges. Lacking strong political support for the overall concept of FDI, the agency was considered the unwanted child of the Czech government. The public sector was distrustful of FDI; the prevailing public opinion was that foreign companies would acquire the countrys assets on the cheap. The new conservative administration was not inclined to intervene in support of FDI, fearing state interference in free markets would hurt domestic suppliers. 4 Although CzechInvests mandate was to promote FDI, the agency was not empowered to offer investors regionally competitive benefits backed with legislative authority. Havelka set to work on two fronts: 1) changing the publics perception of foreign investment, and 2) winning the governments trust and gaining its support. Havelka, and subsequently Martin Jahn, the agencys current CEO, would focus on solidifying a platform on which the agency could actively compete for investment. In particular, the agency would garner strong support from the Minister (in its early years) and the Deputy Minister (in its later years) of Industry and Trade, the Steering Committee, and the EU (which provided CI with the expertise and advice of consultants who had working experience with the Ireland Development Agency and the Scottish Enterprise). This collective support was among the key factors in creating a framework that would allow the agency to respond to the needs of potential investors, and attend to the specifics of product development. Several of these factors are highlighted below. Changing Perceptions through the Steering Committee. The eleven members of the Steering Committee (also known as the Board of Directors) were carefully chosen for networking purposes, providing CI with the weight it needed to influence state officials.5 (See Exhibit 4: Mandate and Governance Structure.) The Steering Committees mixed composition also provided a platform for interaction between private and public sector representatives. The Committees ability to explain the benefits of foreign investment was the key to building a growing understanding among the public sector about the countrys need for FDI. The Steering Committee played an integral role in the early years when the agency routinely required guidance, advice, and access to Committee members respective institutions. Among its purposes, the Committee provided a buffer in resolving budget-related issues with the Ministry of Finance. As the agency developed, the importance of the Steering Committees advisory role lessened. Mobilizing Support from the EU. CI was initially allocated a small budget from the Ministry of Industry and Trade, but Havelka looked to outside sources to properly capitalize the agency and establish some financial independence. CI was able to enlist the technical assistance of the EU, which provided the agency with significant financial and intellectual support through the PHARE Program between 1993 and 2000.6 EU funds accounted for up to 60% of the agencys budget between 1994 and 1996. (See Exhibit 5: Budget and Technical Assistance.) This capital was dedicated primarily to the establishment and operation of foreign offices, a critical component in positioning the Czech Republic as a viable location to Japanese, European and American investors. The EU funds also covered some operational expenses, salaries of experienced foreign advisors, and projects approved by the EU such as the Database of Industrial Property in the Czech Republic, and the
Table 1-1 FDI Inflows to the Czech Republic, 1995 2002
Year
FDI (US$ billions)
1995 1996 1997 1998 1999 2000 2001 2002
2.57 1.43 1.30 3.72 6.32 4.99 5.64 8.44
Source: Czech National Bank, March 2003.
One of the foreign advisors of CI, Andrew Thorburn, captures the strength of CIs leadership: The leadership of CI demonstrates that effective leadership is not just about being able to motivate people and plan a strategy, but also about the ability to balance the needs of customers (the investors) with the political realities of the country (government). Without political support, which makes it the front door for investors, rather than one of many, an IPA will rarely succeed.
CZECHINVEST
13
Economic Development Accreditation Program. Beginning in 1997, EU funds accounted for about 30% of the CIs budget and funded the sourcing program to support Czech suppliers, and the Industrial Zone Development program. In addition, CIs relationship with the EU influenced its FDI incentives program, which was designed to comply with EU country regulations in anticipation of the Czech Republics accession to the EU. This strategic decision provided a competitive advantage for the Czech Republic relative to other candidates for EU accession. Maintaining Independent Control of Funds. It was critical for CI to control its available funds to ensure the financial backing of the programs that would comprise its product offering. In order to avoid interference by other state entities on the use of the available funding, CI established clear criteria to determine the usage of funds.7 The politically well-connected leadership of CI was instrumental in achieving a delicate balance for the agency; it remained an entrepreneurial organization, rather than becoming a secretariat for ministry functionaries, and at the same time operated as a government agency. Jan Havelka contends that the ideal way to keep the agency flexible and free from the governments administrative stiffness and bureaucracy would be to have the legislation specify that the agency will be autonomous yet accountable, and also to have clear and simple reporting structures. Establishing Channels for Investor Feedback. In its early years, CI faced reluctance among potential foreign investors due to the transitional nature of the Czech economy. In 1996, CI led the establishment of the Association of Foreign Investors (AFI) to serve as an official body representing the interests of investors to the government. AFI also proved to be an important vehicle for soliciting and channelling investor feedback, and for funding key CI programs that were not covered under other earmarked sources. (AFI funds represent about 5-10% of CIs total funding.) In addition, AFI was able to offer investors services on a paid basis, such as assistance obtaining visas, which CI was not able to provide as a non-profit organization. This activity effectively broadened CIs scope in accommodating investors. Through AFIs breakfast meetings, unofficial meetings with ministers, unofficial contacts with investors, and the AFI/CI-sponsored annual awards (such as Best Investor, Most Successful Industrial Zone and Most Successful Supplier), CI built working relationships that would help address investors specific concerns. In addition, AFI and CI partnered to initiate working groups on a number of issues, including labor law, residency issues, tax accounting, and real estate development. The reports of these working groups were shared within the agency and the Ministry, and then passed on to the Cabinet. In the case of residential permits, subsequent legislation resulted in a more transparent and efficient permitting process. Managing the Agency Like a Business. In setting up the operation, Havelka determined that CI must be a flexible, dynamic organization in order to respond to the needs of prospective and installed investors. He viewed CI akin to a privatesector business, a new and different approach for a government agency. At the onset Havelka negotiated with politicians to break free from those who saw CI as a place to put their political supporters. It is very important to keep an IPA business-like, he says, and not to be tempted to turn it into an administrative body due to the governmental nature. Havelka adopted a team culture and customer-driven work ethic in sharp contrast to the rigid hierarchy and bureaucracy institutionalized at government offices over 40 years of the previous regime. His approach further developed
14
CZECHINVEST
in Jahns product strategy and adaptive, process-based management continues to drive the CI operation today. (See Exhibit 6: Organizational Structure and Staffing.) Jahn, who joined CIs marketing department in 1994 and became CEO in 1999, emphasizes, We are a government agency trying to adopt a private sector management style. CIs attention to market dynamics has helped its leadership make deft adjustments in strategy and execution along the way. (See also Exhibit 12: CzechInvests Strategy.) This was evidenced when EU countries, including Germany, experienced an economic slowdown in 1996. CI shifted its focus from multinationals to middle-market firms, understanding that the smaller firms would be the first to face the urgent need to reduce their costs and relocate. In staffing the agency, Havelka and his successor, Jahn, relied on a selfmotivated, multilingual young staff backed by experienced foreign advisors. As a government agency, two rules put CI at a disadvantage in recruiting highly qualified employees: 1) CI could not offer wages higher than those of other state employees, and 2) the salaries of employees had to be based on the number of years of work experience, regardless of responsibilities. Unable to offer wages competitive with the private sector, CI found it virtually impossible to hire and keep experienced managers. As a result, the agency hired, trained and incentivized talented recent college graduates, who were delegated significant responsibility in terms of project management and product development, a practice that continues today. (See Exhibit 7: Human Resources at CzechInvest.) Jahn says that people are the most critical element of any operation, and relates the success of the agency to its ability to recruit exceptional and high quality staff. Creation of a team spirit and allowing for creativity were the other key factors, according to Jahn.
The CEOs Recipe for Success When asked about the factors contributing to the success of CI, the current CEO, Martin Jahn, and the former CEO, Jan Havelka, listed the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. Try to respond to the market and customers. Dont copy others but learn, innovate and modify for the Czech Republic. Utilize a matrix management based on processes. Create cross-departmental teams. Create a team spirit. Recruit right and motivate well. Achieve understanding and trust of government. Keep the agency out of politics. Try to achieve quick results.
The Strategy
First and foremost, CIs strategy was pragmatic. The agency needed to show quick results that clearly demonstrated the positive impacts of FDI to the Czech public and government. It was decided greenfield manufacturing investments in three sectors automotive, electronics and precision engineering held the most immediate opportunity. Greenfield projects were considered more straightforward to develop and secure than joint ventures, privatization or brownfield investments. Multinational greenfield manufacturing projects carried the realistic potential of generating good publicity through job creation; they recognized traditional Czech strengths in manufacturing, embodied in the technical skills of a production-oriented and trained labor force. In addition, the Czech Republics central European location and proximity to major markets could be touted as a distinct advantage for manufacturers locating plants to serve Europe. On the other hand, privatization projects might have the opposite of the intended effect, fostering negative publicity if employees of an enterprise were fired as a result of restructuring in the company. Neither brownfield projects nor joint ventures seemed to hold much excitement for investors. For CI, brownfield projects were viewed as too complex and costly to develop, given unclear ownership rights and difficult bankruptcy procedures. Early on the agency was careful to not get mired in potential problems, such as land ownership and site development, which are often tricky to resolve from both a legal and funding perspective. However, as the agencys strategy evolved, it would increasingly emphasize CIs role in influencing the quality of the investment environment.
CZECHINVEST
15
The Czech Offer

In order to meet the requirements of its mandate to attract FDI to the Czech Republic, CI focused on improving the Czech offer to investors through service enhancement and product development. The agency started by listening to its customers (the investors) and turning its limitations into advantages. Over time, the agency learned that it could improve its services by establishing 1) a foreign presence to reach out to its clients and present them with a quick and efficient point of contact, and 2) a local presence in the countrys regions to meet the differing needs of investors and increase CIs knowledge of its on-the-ground business locales.
Milestones in CIs Product Development 1993 1994 CzechInvest is launched. Two district offices and the London foreign office are opened. Regional network service is launched.
Service Enhancement
Foreign Offices. When CI was planning how best to promote the Czech Republic in its early years, the only institutions that could represent the agency abroad were its embassies. However, it did not take CI officials very long to realize that promoting the country exclusively through the embassies was not enough. When CI tried to establish foreign offices, there was initial resistance due to the high costs involved. However, the agency was able to establish its first foreign offices with assistance from the EU. In 1994, the first foreign office was opened in London to facilitate networking with US and Japanese firms considering expansion investments in the UK and Ireland. The following year CI opened offices in Paris, where Renault and other automotive manufacturers were located, and in Dusseldorf, where a concentration of Japanese manufacturers was based. In 1996, Martin Jahn, then Director of Investment Projects, was asked to open the Chicago office, CIs first in the US. In ensuing years, additional offices were established in Japan, Hong Kong, Brussels, Silicon Valley, California and Cologne, to eventually incorporate eight foreign offices. CI used a scoring system to monitor the effectiveness of its foreign offices and to motivate its foreign representatives. (See Exhibit 8: Scoring System Used to Monitor Foreign Offices.) The system was based on setting annual targets, reporting of actual performance on a quarterly basis, and comparing the year-end results with the targets to determine efficiency. Joseph Lebl, the senior advisor to CIs CEO, says: The scoring system clearly laid out the results by the foreign offices and really helped in addressing the concerns of EU as the funding agency. Although initially thought to serve as the first point of contact for investors, the foreign offices were responsible for 60% of the leads generated by CI by 1998. He adds that the system is under review: The scoring system is one way to monitor performance and it had some weaknesses causing the representatives to focus on collecting points. We are currently working on how to refine our ways to measure performance. Regional Links. CIs regional program is viewed as a distinct competitive advantage in investment promotion. Its underlying premise was that investors would favorably respond to on-the-ground involvement of the municipal communities under consideration as sites for their projects. The program was designed to present investors with alternative locations for investment in the Czech Republic, through 1) the active participation of trained representatives in accredited municipalities, and 2) consolidated information about industrial properties countrywide. The need for a regional service component became apparent when the agency determined that investors rarely considered capital region sites alone. In response, CI created the Regional Development Cooperation Section to establish good links
1996
1996-97 CI lands a few, large greenfield projects, including Matsushita located in Pilsen. 1997 Association of Foreign Investors is founded. FDI-supportive government is elected. Introduction of incentives package spurs record number of FDI projects; funds are made available for industrial zone development. System to support industrial zones is approved; Suppliers Support Program is started. New foreign/local incentives package for manufacturers goes into effect. Supplier Development and Industrial Zone Development Support (2001-06) programs are started. Investment Incentives Act is amended; programs to support strategic services and technology investors are approved.
1998
1998
1999
2000
2001
2002
16
CZECHINVEST
with key regions that could provide information, sites and a welcome to potential investors. The RDC Section became the Industrial Properties and Regions Department of CI, which developed the agencys property support functions and the City Certification program, a training and qualifications process for regional and municipal authorities who lacked understanding about FDI and its potential impact on local communities. The launch of the certification program was a milestone in a long advocacy process initiated by Havelka to actively involve reluctant Czech communities in promotion for FDI. Local government leaders, jolted by an economic recession and rising unemployment, began to realize in the mid-1990s that FDI could help stabilize their economies. 8 The regional certification program, funded through the Ministry of Regional Development, aimed to develop a regional network through an accreditation scheme based on the Virginia state model. The first phase of the program took place between 1996 and 1998. CI trained staff of local governments interested in addressing unemployment by attracting FDI, and supplied them with computers and other equipment. This enabled CI to extend its client service by organizing visits to different regions of the country, and by offering choices of locations to potential investors. In 1996, CIs first major greenfield investor, Matsushita, the Japanese manufacturer of the Panasonic brand, selected the accredited city of Pilsen as its project site.
Advice from the CEO on Improving the Overall Product for Investors Martin Jahn, CIs CEO, stresses the necessity of IPA involvement in developing aspects of the investment climate and specific investment opportunities, even though these issues are often very complex. He says: Even a great IPA cannot bring investors if conditions are not right. Developing the right set of incentives, infrastructure and other factors is a task that has to be taken very seriously by IPAs. It was a key, among others, to our success.
Product Development
Over the course of ten years, CI conceived, implemented and adapted a rapid series of products designed in response to its targeted investors most pressing requirements. The development of each product essentially required six steps, to: 1) identify the need, 2) ask investors for input, 3) develop knowledge, 4) compare ideas to other models, 5) create the product, and 6) check performance and revise as necessary. The process of product adaptation and revision ensured a competitive momentum, and would eventually help transform CI into a development agency focused on improving the quality of the investment environment to drive future growth in FDI. We further enhanced the Czech offer by listening to our customers, says Martin Jahn. We realized that we had to be able to offer serviced land readily available for industrial investors, and increase the skills and output levels of the Czech private sector to meet the sourcing demands of foreign investors. In recent years, the CI product offer developed to attract FDI has incorporated important economic development objectives, such as supporting domestic suppliers and improving the qualifications of the Czech labor force.9 CIs first major product the incentives package was a major step toward improving the Czech Republics competitiveness in attracting FDI. Introduced in April 1998 following a change to an FDI-supportive cabinet, the incentives package demonstrated with legal authority the countrys commitment to FDI. Its introduction marked a long-fought victory for Havelka, who early on had advocated to no avail for a legislated package of investor benefits that would counter the considerable support offered by competitive locations. The development of CIs first incentives package paved the way for intensive product expansion and refinement in subsequent years, to eventually include three main components: the framework to support businesses (investment incentives system), industrial property development (including industrial zones), and a supplier linkage and upgrading program. Investment Incentives. The top management at CI believes the countrys success in attracting FDI was strongly influenced by the introduction of investment
CZECHINVEST
17
incentives, and that the key to their design was 1) understanding the importance of investor input, and 2) listening closely to investor requirements. CEO Jahn reports that when the agency developed the first set of incentives the CI team worked with Intel, which was evaluating sites for a project that could be located anywhere. As the initiator of the incentives scheme, CI based its first set of incentives on Intels suggestions to offer the best it could under the Czech legal system. The result was an incentives package that combined inputs obtained from investors with the findings of a benchmarking study that compared competitor incentives. In finalizing the package, CI worked with several government departments, including the Ministry of Finance and the Ministry of Labor and Social Affairs. Within two years the Czech Republic registered a record number of FDI projects. CIs Senior Advisor to the CEO, Josef Lebl, recalls: CI observed that between the period of 1998 and 2000, while overall FDI in Europe grew by 20%, the amount of FDI in the Czech Republic grew by 400%. The incentives package allowed for income tax relief, reduced prices on the transfer of land, and financial support for the creation of jobs and retraining of employees. A subsequent act on investment incentives for manufacturers, designed for use by both foreign and domestic investors under the same conditions, came into force in May 2000. Originally, the headline tax relief incentive was available only for newly established legal entities without any prior business activities in the Czech Republic, but the new act extended this provision to expansion projects. The original minimum investment level of US$25 million was later reduced to US$10 million. In January 2002 the Czech Parliament further reduced the minimum to US$3 million in areas undergoing major economic change. Industrial Property Development. CIs venture into property development began in 1998 when funding was made available for the development of four strategic industrial zones.10 The agency had identified that greenfield manufacturers often expected a level of pre-existing infrastructure in the sites they considered. The development of industrial zones addressed the lack of serviced land suitable for their operations. Situated in areas of high unemployment, the zones also guaranteed a minimum of 2000+ jobs per project through their investor qualification requirements. In 1999, the government approved a system to support the development of additional industrial zones, which provides state-funded incentives for investors and financial support for communities, including preferential transfers of state property for the purpose of zone development. The function of assisting local governments in land development and zone management training was incorporated under CIs Industrial Properties and Regions department. CI also supports the revitalization of land and zone properties, an increasing focus for the agency as its development role expands. CI built and maintains a database of industrial properties and buildings, an example of its working partnership between the public and private sectors. Recently, two issues have come to the forefront: 1) the reconstruction of old and unsuitable buildings, many of which were built prior to 1918; and 2) the revitalization of existing industrial zones. The agency plans to put forth the zone revitalization program as a priority for cofinancing from EU Structural Funds. Supplier Development Program. CI had learned from surveying investors that multinationals considered the local supplier network a key determinant in their investment decisions, in fact, second only to labor availability as a critical factor. Local sourcing could help investors lower production costs, monitor quality, and offer flexibility in altering product specifications and design. Yet multinational investors operating in the Czech Republic imported 90-95% of their components in order to meet their production requirements, driven by world-class standards
18
CZECHINVEST
and global competition. CIs top management perceived a two-sided opportunity: to address investors supply demand and willingness to source locally by strengthening the capabilities of Czech suppliers. From CIs perspective, a robust, competitive Czech supplier base for key prominent sectors was a way to embed FDI into the economy and channel its benefits, helping to both retain and attract investors while supporting domestic suppliers. In 1999, CI launched the Pilot Supplier Development Program (also called the Twinning Programme) in the electronics sector, the Czech Republics fastest growing and second-largest FDI sector after automotive. The programs orientation was demand-driven and highly practical; its overall objective was to equip participating suppliers with the information and skills to meet investors requirements and win more and higher value-added contracts. From a database of supplier company profiles CI created, 45 committed companies were identified as potential candidates to expand their businesses and supply foreign manufacturers based in the Czech Republic. These companies outlined the areas of support they needed, and then were provided training by Czech and international experts in the first phase of the program. After seven months, the companies were reevaluated. The 20 suppliers that were found to have shown the most improvement in their performance were invited to participate in the Programs second phase of individually tailored assistance. CIs researchers determined all but four of the initial 45 company participants demonstrated marked improvement in their capabilities. CIs evaluation of the program eighteen months after it ended in July 2002 showed promising results. Fifteen suppliers had landed new, renewable contracts, amounting to more than US$46 million for the period 2000-2003. Participating suppliers especially valued improvements in their strategic management, management of customer relationships and communications. The experience suggested that government assistance could help an important segment of Czech firms compete for contracts that otherwise might be won by new foreign suppliers or sourced abroad. Based on these results, CI subsequently rolled out Twinning II, extending the scheme to the aeronautics, automotive, pharmaceutical and engineering sectors. In addition to the Supplier Development Program, CI maintains a database of pertinent information on local manufacturing companies, first established in 1990 as a function of CIs sourcing department. The database is searched in response to inquiries by foreign investors interested in exploring joint ventures or in identifying local suppliers. According to Vit Svajcr, the Director of CIs Supplier Development Department, In order to match the foreign companies with local ones, it is crucial to understand the needs of the foreign company and what matters to them the most.
Fulfilling on the Offer

As in the case of CzechInvest, product development is an iterative process that demands continual inputs and systematic evaluation. IPA managers need to pay attention on several fronts, to 1) the efficacy of current services and programs are they delivering?, 2) new requirements from existing investors, 3) competitive opportunities and shifts in targets warranting new or revised programs, and 4) the impact of the current product and service offer on public and government perceptions of the agency. In addition, once programs are incorporated into the product offer, they carry the burden of overheads, requiring recurring funding and incorporation into the organizational structure to fulfill on their commitment to investors. At CI, several of the products are managed as discrete departments, including Investment Incentives, Industrial Properties and Regions (which incor-
CZECHINVEST
19
porates zone promotions, property support and regional cooperation), and Supplier Development. (See Exhibit 6: Organizational Structure and Staffing.) As the product offer grows in elements and complexity, as it naturally will to accommodate an increasing number of objectives and investors, the task of monitoring and evaluation expands in turn. However, to a significant degree the framework that enables effective product development is also effective in keeping the product offer on track over time. As CIs product package evolved, CI used several approaches to establish and reinforce credibility for the agency and its programs, to ensure continued political and financial support, and to stay abreast of investor needs. Cultivating Positive Perceptions of the Agency. CIs experience suggests that image building of the agency is often as important as image building of the country among targeted sectors. (See Exhibit 9: Image Building Among Investors.) This certainly was true in the early stages of CIs product development. To create and implement its offer, CI worked to create a positive image of the agency and its purpose to the government, the public and the investors. It was also essential for CI, as facilitator between investors and government entities, to establish good working relationships with the government agencies. To help convince the Czech public of the potential benefits of FDI, CI shared the positive experiences of other countries, promoting the agency and its efforts through continual press releases. Over time, CI was also successful in addressing criticisms that the agency was only involved with foreign companies. The supplier development program presented an opportunity for CI to work with local companies. Similarly, the amendment to the investment incentives law, which lowered the threshold of eligibility for investment incentives, fostered domestic support through its increased access to Czech companies. Winning Governments Trust. During CIs early years, the agency forged ahead to create programs and clear policies to attract FDI, in spite of the governments ambivalence toward FDI. Jahn remembers that this period made the staff at CI work harder to prove we were useful. CIs top management recognized the need to build up strategic influence in the government and other administrative bodies. CI employed internal public relations efforts to gain the understanding and trust of the government, especially from the immediate Ministry of Industry and Trade. CI never competed with the Ministry (of Industry and Trade). It tried to make them look good, says Andrew Thorburn, an advisor to CI. A strong relationship was developed through routine interactions, such as asking the Ministrys advice, articulating CIs objectives, and briefing Ministerial officials on the motivations and needs of investors. CI outsourced administrative duties - including recruitment and salary documentation, employment contracts, and accounting - to the Ministry, a strategic move that helped to cement the Ministrys trust. CI also invited government officials on study tours and remembered their birthdays and other personal events. CIs solid working relationships with other Ministries and government entities were integral to its product development, particularly during the design stage of the investment incentives package. CI was able to lead all parties to a political consensus that integrated the incentives into the governments overall economic policy. This effort subsequently enabled CI to act as the sole agency authorized to receive applications for investment incentives, and streamlined CIs application process, which requires approvals from several Ministries and/or government agencies.
20
CZECHINVEST
Using Performance Measurement to Establish Credibility. In support of its product development efforts, CI used regular performance measurement to help 1) revise its products on a sound basis, 2) build a solid image, and 3) secure funding. It was crucial to systematically track performance for both internal and external reasons. Internally, the agency needed to assess the factors that determined its ability to deliver against expected results, in order to accordingly adjust its resources and focus. Externally, CI needed to establish a credible position with public and private entities, including funding sources.11 CI benefited from presenting its annual results in comparison to targets specified in its business plan, a technique that helped communicate a powerful message to the public and private sectors. CI also developed Impact Statements (brief investment summaries) and a document called CzechInvest in Numbers, which quantifies successfully completed projects, investment incentives granted, number of jobs safeguarded, and investment commitments mediated. (See Exhibit 10: Impact Statement by CzechInvest, and Exhibit 13: Investment Mediated by CzechInvest.) This analysis and results-driven orientation helped CI justify its purpose and impact. When CIs top managers engaged in media promotion of CI and face-to-face discussions with influential politicians, the numbers backed up their arguments. The agency sets performance targets each year and measures its overall performance against these targets, using the amount of investment that will be attracted and number of jobs that will be generated as key indicators. CIs top management believes that the best way to keep the agency operating as a business is for the CEO to monitor the agency on a quarterly basis. In this way the CEO can ensure the efficiency of the employees, divisions and the agency, and keep an eye on the budget to ensure profitability. Each department also has targets to meet, which are decided and agreed upon by each department head and the CEO. (See Exhibit 11: Annual Targets of the Marketing Department.) Department heads are responsible for establishing targets with their staff members each year, and every six months managers meet with their employees to review performance. Based on performance, employees may earn a twice-yearly bonus, ranging from 35% to 85% of their monthly salaries. (See Exhibit 7: Human Resources at CzechInvest.) Monitoring the Business Environment. As CEO, Jahn incorporated an advanced level of external communications and his own style of systematic networking into CIs day-to-day operations. This often meant balancing both government and business interests toward furthering CIs mandate. Jahn believes that the process of securing several of the Czech Republics large milestone investments, including Toyota Citroen Peugeot, entailed selling the investor to the regime, and the regime to the investor. The continual process of monitoring investor needs within the context of the governments objectives also provided CI a sound basis for the development and continuing support of its products. According to Jahn, CI relies on three business segments to provide critical insight: 1) individual investors, 2) trade and business associations, and 3) advisory services for investors, including lawyers, and tax and FDI consultants. In addition, the Czech AFI (Association of Foreign Investors), which contributes 5-10% of CIs funding, has allowed the agency to extend its collaboration to include the investor awards program and working groups on investor issues. To obtain regular feedback from existing investors, CIs Aftercare Department commissions independent research through biannual investor surveys, and schedules individual site visits with investors every six months. In addition, CI organizes a breakfast forum in which each Ministry and key investors are invited to meet and interact on investor issues. The feedback CI collects from these activities is summarized in a report, Proposal to Government for Development of the Business and Investment Environment, which is submitted to the Ministry of
CIs mission 2000 2004 CzechInvest is a national development agency whose task is to promote the Czech Republic abroad as one of the most advantageous areas in Europe in which to locate mobile foreign direct investment (FDI) into the production and strategic services sectors. In fulfilling its primary mission, the agency actively contributes to this investment process through development of industrial zones, support of the domestic sub-supplier network and raising of the labour forces qualifications, as well as by participation in implementing technical and structural assistance primarily from EU sources. Source: CzechInvest.
CZECHINVEST
21
Update on CzechInvest In January 2004, CzechInvest, Investment and Business Development Agency, became a new unified entity through the merger with the Agency for Business Development (APR) and the Agency for Development of Industry in the Czech Republic (CzechIndustry). Martin Jahn was appointed CEO of the new agency which aims to support both foreign and domestic enterprise development to "the highest level of competence through information services and consultancy linked with investment incentives and structural funds of the European Union," according to CzechInvest. Following Martin Jahns appointment as Deputy Prime Minister, Economic Affairs, in August 2004, Radomil Novak, former Director of CzechInvest US Operations West, was appointed by the Minister of Industry and Trade to head CzechInvest. While investment promotion will continue to be a core activity, one of our key goals is to improve competitiveness both in terms of the enterprises in the Czech Republic and of the country as an investment location, said Radomil Novak, adding, to that end, we aim to help encourage and foster an innovation and technology culture to ensure science and technology can achieve sustainable development in the Czech Republic. As of the final quarter of 2004, CzechInvests staff exceeds 200. Source: CzechInvest.
Industry and Trade. The Ministry then takes the report to the government, which in turn assigns relevant Ministries to address individual problems. It was through this mechanism, says Jan Hanzl, the Director of the Aftercare Department, that the problem regarding delays in the issuance of visas for expatriates was resolved. CI formed a working group on visa issuance composed of AFI members, lawyers, the Immigration Department, and representatives of Ministries of Foreign Affairs, Interior, and Labor. The working groups finding was that not all locations asked for the same information and that the information requested was not always clear, and therefore, the lack of information was causing delays in visa processing times. As a result, an information package that clearly listed information requirements was printed and sent out to all Czech embassies and foreign offices of CI, and an application form was posted on the Internet.
Next Steps
After ten years, CIs 235-project portfolio of investments strongly reflected its focus on greenfield manufacturing, a measure of the agencys success in creating an effective product offer. In total figures, the agency facilitated US$7.38 billion in investments, nearly all in manufacturing, and a resulting 67,225 jobs. Over 80% were greenfield and second-phase expansion projects. (See Exhibit 13: Investment Mediated by CzechInvest.) Two thirds of the projects, representing 75% of the total portfolio value, were in CIs three targeted sectors of automotive, electronics and precision engineering. Through its intensive product development efforts starting in 1998, the agency supported the development of 71 industrial zones with a total area of 2,149 hectares available for investors with differing needs. In terms of overall economic impact, CI can account for at least 1,200 foreign capital-backed manufacturers in Bohemia and Moravia that employ 280,000 Czech citizens and help protect an estimated 10,000 Czech suppliers. These suppliers employ a half million people, about 10% of the Czech labor force. (See Exhibit 10: Impact Statement by CzechInvest.) Furthermore, FDI is expected to account for 90% of new jobs over the next three years. Another measure of CIs success in product development is reflected in the agencys growth and expansion in scope. Effective January 2004, CI incorporates a larger organization through a merger with CzechIndustry and the Agency for Business Development (APR), increasing the agencys staff from 80 to 125 employees for a total of near 200, including contract professionals. How will CI adapt its product innovation and range to accommodate foreign investors within its broadened objectives for the development of Czech business? CzechIndustry is mandated with shaping industrial policies to increase the competitiveness of Czech industry and its regional development, and is the main conduit for channeling structural (EU) funds for industrial programs. APRs main task is to develop and strengthen small and medium enterprises. CI faces both organizational and strategic challenges in maintaining its product focus on investment promotion for the newly structured agency, as it will also need to address its efforts to other areas. How will CI tackle the task? The merger presents CI with the opportunity to further integrate its product development for FDI with its efforts to upgrade the investment environment, but this will require a redefined mission and performance criteria, new strategies and objectives, and changes in the organization and its structure. (See Exhibit 12: CzechInvests Strategy.) CI faces another challenge as it moves to encourage more investment in the services sector, which emerged as a primary focus in the agencys 2000-04 mission statement. Since the agencys inception, CI has focused its efforts on manufacturing sectors that would help address the countrys unemployment. As a result,
22
CZECHINVEST
the Czech Republic attracted a sizable share of FDI in manufacturing directed to Central and Eastern Europe. What products will CI develop to leverage its established position in manufacturing to accommodate investors in services? What unique requirements must new CI products address? In planning its FDI strategy, CI now uses the addition of high value and potential for technology transfer as criteria to determine the quality of the investment, rather than employment generation. In general, new, targeted investments are those in high technology, research and development, and strategic services, for example, logistics operations, and centers for high-tech repairs, software development and customer contact. CI has modified its investment incentives scheme to attract these types of investments a services package was passed into law in December 2003 and has recently secured several services projects. How will CI orient its product development to its new targets and marketing strategy? The agency will need to increase its knowledge of these sectors, educate its stakeholders and garner their support, and further refine its product offer and marketing tools for the services sectors. CIs next stage will require a careful realignment of focus and resources to build an effective product package for services, while the agency manages growth and retention of manufacturing investment, the powerhouse of its FDI project portfolio.
Questions for Discussion*

1) What foundation did CzechInvest put in place to support its product development, and how did the agency define its role in creating this foundation? In hindsight, which aspects of this foundation were most critical to building its product package for manufacturers? 2) What role did CI assume in developing the incentives and other factors that define the Czech Republics overall environment for investors? Which CI activities supported this role? 3) How did the Czech product offer respond to prospective investors requirements? What mechanisms facilitated CIs product development and adaptation? 4) How did the various product and service components encourage investment among greenfield manufacturers? How did the overall Czech offer enhance the Czech Republics competitiveness in attracting FDI? 5) How did the sequence of programs reflect CIs strategy of quick wins and job creation? 6) What are good measures of the success of the individual offer components? What are good measures of CIs effectiveness as a whole? 7) What was the impact of CIs products on the Czech Republics development objectives? 8) What next steps should CI initiate in the continual adaptation of its product offer, given new development priorities and targeted sectors? * (See also Exhibit 2: Summary Q&A.)
CZECHINVEST
23
Endnotes
1
These awards were presented by Corporate Location magazine in 2000 and 2002, and Strategic Direct Investor magazine (published quarterly by Euromoney Institutional Investor) in 2003. The incentives scheme was revised in 2000, and again in 2002. The history of investment promotion in Czechoslovakia began soon after the Velvet Revolution. In October 1990, the Federal Ministry of the Economy of the Czech and Slovak Federal Republic set up a foreign investment agency at the federal level. Similar agencies were established at the national level. After the peaceful split of both countries, the Federal Foreign Investment Agency was dissolved in October 1992, and on November 1, 1992, the Minister of the Czech Ministry of Industry set up the new Czech Agency for Foreign Investment (later re-named CzechInvest in March 1993.) CzechInvest became operational in 1993. CzechInvest: Legislation Versus Discretion, American Chamber of Commerce Teaching Case, 2003. CI operates under the Ministry of Industry and Trade, and is run by a chief executive officer (CEO), guided by a Steering Committee. The CEO of CI reports to the Deputy Minister (and Head of the Office) of the Ministry of Industry and Trade, who is also the Chairman of the Steering Committee that advises CI on long-term goals and strategies. See Exhibit 4: Mandate and Governance Structure. The PHARE Program would also fund CIs Supplier Development Program until 2004. This was demonstrated, for example, in CIs Program for Support of Industrial Zones Development. CzechInvest: Legislation Versus Discretion, American Chamber of Commerce Teaching Case, 2003. CI is in discussions with Investors In People (IIP) International to implement the pilot stage of the IIP standard, the national standard in the UK. IIP sets a level of good practice for the training and development of people to achieve business goals, and provides a national framework for improving business performance and competitiveness. Strategic zones are defined as industrial zones larger than 20ha planned to host manufacturing operations investing a minimum of US$300 million, and creating 2000 or more jobs. CI is audited by the Committee of the Association of Foreign Investors (AFI), the EU (due to EU funding provided to CI), the Department of Internal Audit of Ministry of Industry and Trade, and the Highest Controlling Office, which controls government budgets and programs.
2 3
6 7
10
11
24
CZECHINVEST
Exhibit 1 Economic Indicators of the Czech Republic
POVERTY and SOCIAL Czech Republic 2003 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions) Average annual growth, 1997-03 Population (%) Labor force (%) Most recent estimate (latest year available, 1997-03) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ billions) Gross domestic investment/GDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports Present value of debt/GDP Present value of debt/exports 1983-93 (average annual growth) GDP GDP per capita Exports of goods and services STRUCTURE of the ECONOMY 1983 (% of GDP) Agriculture Industry Manufacturing Services .. .. .. .. 1993 5.6 42.4 .. 52.0 .. .. .. 1983 .. .. .. .. .. .. .. .. .. .. .. 1993-03 1.9 2.1 9.9 1993 34.4 26.8 55.8 28.4 28.3 1.3 0.8 26.6 7.1 .. .. 2002 2.0 2.2 2.8 .. 74 75 4 .. .. .. 104 105 104 -0.2 0.0 10.2 6,740 68.8
Europe & Central Asia 473 2,570 1,217
Uppermiddleincome 335 5,340 1,788
0.0 0.2
1.2 1.8
.. 63 69 31 .. 91 3 103 104 102
.. 76 73 19 .. 89 9 104 104 104
2002 69.5 28.1 65.2 25.8 21.7 -6.5 1.4 38.1 9.3 37.9 55.6 2003 2.9 2.9 ..
2003 85.4 .. .. .. . .. 1.0 40.8 .. .. .. 2003-07 .. .. ..
2002 3.8 39.6 .. 56.7
2003 .. .. .. ..
CZECHINVEST
25
Exhibit 1 (continued) Economic Indicators of the Czech Republic
Private consumption General government consumption Imports of goods and services (average annual growth) Agriculture Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services PRICES and GOVERNMENT FINANCE
.. .. .. 1983-93 .. .. .. .. .. .. .. .. 1983
48.9 22.7 54.3 1993-03 2.5 0.9 .. 2.2 3.2 -0.3 4.7 11.1 1993 .. 18.8 44.6 6.7 2.7 1993 14,463 .. .. 11,784 14,617 828 1,387 .. .. .. ..
52.8 21.4 67.5 2002 4.4 -1.2 -8.7 4.4 4.0 5.7 1.3 4.3 2002 1.8 2.6 39.8 -1.3 -1.0 2002 38,402 .. .. .. 40,757 .. .. .. .. .. ..
.. .. .. 2003 .. .. .. .. .. .. .. .. 2003 .. 2.9 .. .. -6.9 2003 .. .. .. .. .. .. .. .. .. .. ..
Domestic prices (% change) Consumer prices Implicit GDP deflator
.. ..
Government finance (% of GDP, includes current grants) Current revenue .. Current budget balance .. Overall surplus/deficit .. TRADE 1983 (US$ millions) Total exports (fob) n.a. n.a. Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100) BALANCE of PAYMENTS 1983 (US$ millions) Exports of goods and services Imports of goods and services Resource balance Net income Net current transfers Current account balance Financing items (net) Changes in net reserves .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
1993 18,952 18,466 486 -118 .. 456 2,574 -3,029
2002 45,258 46,877 -1,619 -3,781 .. -4,523 11,150 -6,627
2003 .. .. .. -4,132 .. .. .. ..
26
CZECHINVEST
Exhibit 1 (continued) Economic Indicators of the Czech Republic
Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$) EXTERNAL DEBT and RESOURCE FLOWS
.. 14.1
3,872 29.2
23,709 32.7
.. 28.2
1983 (US$ millions) Total debt outstanding and disbursed IBRD IDA Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 1,986 0 0 209 0 0 0 -1 16 0 0 0 0 0 0 0 0
1993 9,156 315 0 1,394 19 0 50 173 1,412 654 1,125 80 93 0 93 19 74
2002 26,493 185 0 4,427 52 0 127 -8 1,401 9,323 -265 0 0 41 -41 11 -52
2003 34,899 66 0 6,516 145 0 .. 158 466 .. .. 0 0 135 -135 10 -145
Note: 2003 data are preliminary estimates. This exhibit is excerpted from Czech Republic At a Glance, the World Bank Group. Complete At a Glance data and tables are available by country at www.worldbank.org under Data and Statistics.
CZECHINVEST
27
Exhibit 2 Summary Q&A
What are the most important factors in building up an IPA? CI believes that the selection of staff and the quality of human resources are the most important factors. What should an IPA focus on in its early stages? In the case of CI, the challenge was the governments lack of understanding and trust of FDI as well as negative common perceptions about FDI, so CI focused on achieving the understanding and trust of the government (especially its parent Ministry). The careful selection of the Steering Committee to maximize networking potential helped the agency to build allies within the government. What strategy could an IPA employ to demonstrate quick results? CI focused on how to achieve quick wins by focusing on greenfield investments rather than brownfield investments and joint ventures (which may take more time to realize than greenfield investments), or supporting privatizations (which have the potential to generate negative public opinion). What start-up model is best for an IPA to ensure success? There is no single magical solution. CI studied the experience abroad, local conditions, and listened to investors needs. To do this, the agency utilized surveys, one-on-one interactions, and informal meetings with the investors. What management style should be preferred by an IPA? Clearly, CIs top management feels that the agency successfully applied private sector management and focused on operating the agency like a business. What is the importance for an IPA to maintain a local network? CI established a local network using an accreditation program and trained local governments on how to promote their locations. This enabled CI to offer different options to investors visiting the Czech Republic, and at the same time increased, among local governments, the understanding of the potential benefits of FDI. What were the most significant IPA development tools that CI employed? Among the most important tools that CI utilized to develop the Czech offer were the introduction of investment incentives, the industrial zone development support program, the supplier development support program, and the regional network development. What can an IPA learn from CI in terms of how to establish credibility? Measurement of performance and audits are key elements in demonstrating results and thus, in gaining credibility. What can an IPA conclude regarding CIs decision to offer aftercare? The decision for CI to offer aftercare was based on the agencys desire to cultivate potential expansion of existing projects. Also, being close to the investors provided CI with the opportunity to gather first-hand information on critical issues that needed to be addressed to enhance the business environment.
28
CZECHINVEST
Exhibit 3 FDI Flows into the Czech Republic
As shown in Table 1-2, when compared on the basis of FDI stock per capita, the Czech Republic led the Central and Eastern European countries with US$3,603. Country Sources of FDI Between 1993 and 2000, Germany was the leading investor to the Czech Republic accounting for 31% of cumulative FDI flow, followed by the Netherlands with 11% of cumulative FDI, Austria with 10% of cumulative FDI, France wth 8% of cumulative FDI, and the US with 7% of cumulative FDI.
Table 1-2 FDI Stock per Capita, by Central and Eastern European Country Country FDI Stock Per Capita (in US$) 3603 2754 2659 2647 1859 1738 1282 1191 1040 564 383 174
Czech Republic Slovenia Hungary Estonia Slovakia Croatia Latvia Poland Lithuania Bulgaria Romania Russia
Source: Vienna Institute for International Economic Studies, 2003.
CZECHINVEST
29
Exhibit 4 Mandate and Governance Structure
Members of CzechInvests Steering Committee (in 2003) Public sector representatives: 1) Ministry of Industry and Trade: Ing. Vclav Petrcek, CSc., Deputy Minister; Chairman of the Steering Committee 2) CzechInvest: Ing. Martin Jahn, Chief Executive Officer 3) Ministry of Industry and Trade: Ing. Oldrich Mack, Department Director 4) Ministry for Regional Development: PhDr. Jaroslav Gacka, Deputy Minister 5) Ministry of Finance: JUDr. Vclav Rombald, Department Director 6) Ministry of Foreign Affairs: Ing. Toms Husk, Department Director 7) Czech National Bank: Ing. Petr Prochzka, CSc., Department Director Private sector representatives: 8) Zivnostenska Banka: Ing. Ales Barabas, Deputy to CEO 9) Confederation of Industry of the Czech Republic: Ing. Zdenek Liska, CEO 10) Economic Chamber of the Czech Republic: Ing. Jan Mazcek, Department Director 11) Association of Czech Entrepreneurs: Ing. Vladimr Tajzler, Member of Board
The Ministry of Industry and Trade established CzechInvest with the stated purpose of promoting the Czech Republic to foreign investors. As of 2003, CI defined its mission as sustainable growth of the Czech industry and its competitiveness in the world economy. CI currently presents itself as a national development agency tasked to promote the Czech Republic as one of the most advantageous locations in Europe to host foreign direct investment (FDI) in the production and strategic services sectors. CI operates under the Ministry of Industry and Trade and is run by a chief executive officer (CEO), guided by a Steering Committee. The CEO of CI reports to the Deputy Minister (and Head of the Office) of the Ministry of Industry and Trade, who is also the Chairman of the Steering Committee that advises CI on long-term goals and strategies. The Minister of Industry and Trade appoints all 11 members of the agencys Steering Committee, which include representatives of other government institutions, private sector and banks. As the agency developed further, the importance of the steering committees advisory role lessened. While the committee convened about four times a year in the beginning, it currently meets twice a year to review results, discuss the next years plan, and advise on how to improve results.
30
CZECHINVEST
Exhibit 5 Budget and Technical Assistance
CI is funded by, and reports to, the Ministry of Industry and Trade of the Czech Republic. All the agencys services for foreign investors, including the handling of investment incentives applications, are provided free of charge. From its establishment in 1993 until 2000, the agency depended heavily on the funds received from the EUs PHARE program. These funds were used to support foreign operations of the agency, as well as technical assistance and agency programs. (See EU PHARE Program, next page.) Table 1-3 below illustrates how CI measures the efficiency of its use of funds. While row no. 10 shows mediated FDI (in US$ millions) per employee (based on the number of technical staff, rather than the total staff number), row no. 12 displays the FDI mediated (in US$) per amount spent on FDI (in US$) adjusted for annual exchange rates. (See Note below for annual exchange rates used.) Row no. 14 of the table is CIs way of illustrating the efficiency of the agency in terms of the role it plays: the amount of FDI mediated by CI as a percentage of the total FDI received by the Czech Republic. While this table may not be the most accurate way of measuring efficient use of the amount the government invests in CI, it nevertheless provides an indication of achievements over the years.
(Continued on next page)
Table 1-3 CzechInvest Effectiveness Analysis
1 2 3 4 5 6 7 8 9 10 11 12 13 14
(in CZK millions) State Funds PHARE Funds Total Amount Spent on FDI Amount Spent on Sourcing Total Staff* No. of Foreign Offices
1993 5.2 2.1 7.3 7.3 0 14 0
1994 8.2 13.4 21.6 21.6 0 18 1 .2 71.0 3.9 3.3 88.6 862.0 8.2
1995 14.9 22.3 37.2 37.2 0 24 3 4.8 81.9 3.4 2.2 59.4 2558.0 3.2
1996 20.2 30.0 50.2 50.2 0 28 4 10.5 191.2 6.8 3.8 102.8 1424.4 13.4
1997 28.2 22.9 51.1 51.1 0 32 5 12.0 248.1 7.7 4.8 160.2 1300.0 19.1
1998 36.8 21.7 58.5 58.5 0 31 5 19.0 729.5 23.5 12.5 374.1 3720.0 19.6
1999 52.2 21.5 73.7 73.7 0 35 5 20.0 688.2 19.7 9.3 323.2 6324.0 10.9
2000 83.8 50.9 134.7 113.7 20.1 44 39/5 7 30.0 1561.2 40.0 13.7 529.8 4990.0 31.3
2001 148.4 0 148.4 126.4 21.9 54 48/6 7 36.3 2174.5 45.3 17.2 654.2 5640.0 38.6
2002 166.1 0 166.1 139.1 26.0 63 56/7 8 36.0 1041.9 18.6 7.5 249.5 8440.0 12.3
Budget of Foreign Offices (CZK millions) 0 Mediated Total FDI (US$ millions) 12.5 Mediated FDI per Employee (US$ millions) .9 Mediated FDI per 1 CZK Spent on FDI (US$) 1.7 Mediated FDI per US$1 Spent (US$) 46.2 Invested FDI (US$ millions) 568.0 Mediated FDI as % of Invested FDI 2.2
* Years 2000, 2001 and 2002 reflect the breakdown of FDI staff/Sourcing staff directly beneath the total staff number. Note: CZK abbreviates Czech koruna. Approximate annual exchange rates used are: 1 US$ = 27 CZK (1993-1996); 1 US$ = 33 CZK (1997); 1 US$ = 30 CZK (1998); 1 US$ = 34.64 CZK (1999); 1 US$ = 38.59 CZK (2000);1 US$ = 38.04 CZK (2001); 1 US$ = 33.3 CZK (2002). This table reflects some rounding of decimal places.
CZECHINVEST
31
EU PHARE Program
CI received 14 million euros between 1993 and 2002 from the EU under its PHARE program. This support was very crucial for the development of CI, and for the development of the Czech product. During this period, allocated funds were used to cover expenditures such as marketing, investment research, financing of foreign offices and the presence of long-term EU experts within CI. The Czech Government covered only the salaries of CI staff. Starting from 2001, PHARE funds were oriented to the development programs such as Supplier Linkage and Upgrading Program (SULP) (which received an additional e2 million for its continuation), Industrial Zones Strategy, and Brownfield Development.
Support from EU Phare Program 1998 EU PHARE Program contribution of 21.7 million CZK to finance activities such as marketing, foreign offices, investment research, expert support, etc. PHARE contribution of 21.5 million CZK to finance activities such as marketing, foreign offices, investment research, expert support, etc. PHARE contribution of 51 million CZK to finance activities such as marketing, foreign offices, investment research, expert support etc. 22 million CZK to finance Supplier Linkage and Upgrading Program (SLUP) from PHARE. 30 million CZK to finance Supplier Linkage and Upgrading Program (SLUP) from PHARE, 18 million CZK for the Vtkovice Regeneration Project, 6.8 million CZK for the Development of Industrial Clusters in Northern Moravia.
1999
Other technical assistance that CI received (free of charge) included: 1995-1996 r Joint ventures methodology; advisor dispatched by the Canadian government. r Assistance to CI in dealing with Japanese clients; advisor dispatched by the Japanese government, via JICA. r Technical assistance provided by Mr. Toyota, a Japanese expert paid by JICA. r Technical assistance on how to deal with Japanese clients provided by Mr. Mase, a Japanese expert paid by JICA.
2000
1997-1998
1998
2001
2000-2002
2002
Note: JICA abbreviates Japan International Cooperation Agency.
32
CZECHINVEST
Exhibit 6 Organizational Structure and Staffing
Operating under the Ministry of Industry and Trade, CI is headed by a CEO and is organized into seven departments, as shown in the chart below. The functions of each department are described below: 1. Aftercare This department was organized in 2002 as a result of a decision taken by CI to become more proactive in aftercare services. There were two main reasons behind this decision: 1) to find existing and potential problems inhibiting the expansion of projects, and 2) to split the workload of project managers of the Investment Projects Department. Managed by a director, the department is staffed with two project managers in charge of general aftercare services, one assistant to the director, one project manager focusing on human resources development needs of investors, and one lawyer tasked to get feedback from investors and prepare a summary of issues every three months. 2. Investment Projects Serving as the prime contact for investors, this department was previously organized in three units as high technology sectors, other manufacturing sectors and investment incentives. A new unit called Advanced Technologies and Innovations was formed after deciding to manage the investment incentives under a separate department and to focus on services sectors. The high technology sectors and other manufacturing sectors units were merged into one unit called the Global Services and New Technologies unit. The Marketing Department passes on the meaningful inquiries to the Investment Projects Department, and this department follows up with investors until a project is defined and the production starts.13 In addition to the Investment Projects Department, the Sourcing Department, and the Industrial Properties and Regions Department follow up with projects. The so-called clean projects (meaning problem-free) are then passed onto the Aftercare Department. The Investment Projects Department works very closely with the Incentives, Sourcing and Industrial Properties Departments. 3. Finance and Administration This department is in charge of general administration matters, accounting, human resources, procurement, contracting, and government requirements. (Continued on next page)
Procedure for Investment Incentives Facilitation In order to help investors apply for the national incentives that are available to them, CI has assigned Project Managers to help them facilitate their applications. Upon receiving the completed application and registration forms, CI has 30 days to evaluate the application and present its proposal to the relevant government bodies via the Ministry of Industry and Trade on whether or not to grant an incentive. These government bodies in turn study the proposal and issue their approval for the individual incentives. The Ministry of Industry and Trade, through CI, then issues a formal written offer of investment incentives to the investor. This offer is valid for six months, during which time the scope and value of the incentives offer remains unchanged. If the investor company agrees with the offer, it informs CI and receives the final written confirmation - called the Decision on the Grant of Investment Incentives - of the incentives being offered from the Minister of Industry and Trade.
13
CI defines meaningful inquiry as an expression of interest in investing in the Czech Republic within the next 3 years by a company with a proven track record or which has at least submitted a general investment intent. Only foreign representatives and Marketing Department executives work with meaningful inquiries. CIs definition of a project is an expression of interest in investing in the Czech Republic within the next 3 years by a company that has submitted an investment intent where the following key parameters are known: a) amount of investment, b) type of project in relation to incentives, c) subject of business in the Czech Republic, d) general idea of workforce and zone/property, and e) time schedule of project and visit.
CZECHINVEST
33
4. Investment Incentives The department has a staff of seven and is in charge of facilitation of investment incentives applications. Initially a unit under the Investment Projects Department, this new department was established in 2002 in response to the increasing number of investment projects applying for incentives, coupled with the complicated nature of the incentives scheme. 5. Industrial Properties and Regions This department is composed of four units: 1) Industrial Zone Promotions, 2) Project Technical Support, 3) Project Financial Support, and 4) Regional Cooperation. It was established in response to the lack of industrial property for investors about six years ago, and the need for CI to establish a regional network, which would enable the agency to present alternative locations for investment in the Czech Republic. The department works with the local governments in the Czech Republic under the Support Program for Industrial Zones. It provides technical and financial assistance to the local governments in their greenfield preparation, brownfield preparation, and industrial building construction efforts, and also provides training for managing Industrial Zones. 6. Supplier Development This department was established in April 1999 in response to the demand from investors asking to be introduced to local companies who could act as local suppliers to their businesses. The department started with two technical staff members, an assistant and a director. CI approached the EU as a means to fund a program that
Figure 1-1 Organizational Chart of CzechInvest
34
CZECHINVEST
would help develop potential suppliers to work with foreign companies. Technical experts were provided by the EU to increase the competitiveness of small and medium enterprises, and the supplier development program was designed. This program yielded very good results and a second phase was started in March 2003. The department is managed by a director, and has two units: 1) Czech Supplier, staffed by three project managers in charge of supplier accounts; and 2) Multinational Firms, staffed by three project managers in charge of multinational accounts. In addition, there are two people outsourced for maintenance of a database of local and foreign companies that could be potential suppliers. This database is updated once a year. 7. Marketing This department is composed of two units: 1) the information services unit (employs five people), tasked to provide information both internally (to other departments within CI) and externally (to Ministries, and other government agencies); and 2) the international marketing unit (employs 12 people), in charge of image building and generating investment projects. There are six marketing executives (in charge of automotive, electronics, biotechnology, technology centers, services and plastics and chemicals), one webmaster, one junior executive in charge of graphic designs, two language correctors (for English and German) and two people recruiting new members for the Association of Foreign Investors (AFI) in the international marketing unit.
Foreign Offices
The agency has eight foreign offices that report to the Marketing Department, and to one of the advisors to the CEO: four in Europe (London, Paris, Cologne and Brussels); two in the USA (Chicago, and Silicon Valley); and two in Asia (Yokohama, and Hong Kong). Each foreign office is staffed by a CI representative supported by a local staff member who works as an administrative assistant.
Staffing
Prior to the merger, CI employed 121 people in these eight departments: r Aftercare: 7 people r Investment Projects: 15 people + 4 on Toyota-Citroen-Peugeot project team r Administration and Finance: 26 people r Investment Incentives: 7 people r Industrial Property: 14 people r Supplier Development: 13 people r Marketing: 18 people r Foreign Office Representatives: 8 people r Top management (CEO + deputy CEO + advisors + secretary): 9 people
CZECHINVEST
35
Exhibit 7 Human Resources at CzechInvest
Recruitment Practices and Employee Incentives. In order to ensure that CI hires the right individual for each position, the agency utilizes a thorough and systematic process. To find candidates, the agency runs advertisements in economic newspapers or uses the services of recruitment agencies. The Human Resources manager runs the first round of interviews, and then recommends the best candidates for the second round, in which the directors of departments participate. After agreement is reached on the best candidate, the last step before extending an offer is for the candidate to meet with the CEO. Before finalizing the hiring decision, CI requires a three-month trial period. Although specific requirements vary by position, the fundamental criteria that apply, except for positions in Administration and Finance, are English proficiency, computer skills, demonstrated responsibility, self-reliance and enthusiasm for representing the interests of the country. In the context of transition economies where the marketplace is often seeking young talent, it is a challenge to recruit and keep the right people. To help overcome this challenge, CI recruits young professionals straight out of college or with a few years of experience and utilizes motivational tools such as paying for MBA programs, frequent travel, good quality training, a demanding working environment (patriotic duty) combined with high levels of responsibility. Clearly this also requires having the right image as an organization. The CEO of CI, Martin Jahn, says, Positive motivation is the best management style. People here do not work for the money, but because they want to help the country. I try to create the best environment in terms of potential for travel, education and personal development, but I also demand the highest possible outcome. Human Resources Objectives and Policies. The Deputy CEO of CI, Hana Chlebna, highlights the importance of listening to staff members and their ideas. She says: Being open to the staffs ideas leads to good change. CIs Human Resources Manager, Marketa Konradova, explains CIs system: The introduction of a systematic approach to human resources management through job descriptions, evaluation criteria and systems, processes to structure communications between people, a written organizational structure, and a clear split of activities between departments, benefited CI greatly. Prior to such an approach CI had a few people with good skills demanding high salaries and the turnover rate was around 20%. Currently, CI employs more qualified people with a lower turnover rate (of about 14%). The top management of CI aims to keep the key information, knowledge and experience in the organization (also one of the criteria of each employees assessment) through the efforts of the Human Resources unit. Such an approach stresses the role of experienced mentors within CI. With growth comes the need to improve communications within the agency. CI currently faces the challenge of implementing a system to enhance information transfer and communication among CI departments and staff. As Marketa Konradova explains, In the past, when CI was a smaller organization, intra-agency communication was relatively easy. However, now it will be necessary to set up communication streams between the directors and staff of the departments, filtering the main targets of the agency to the lowest operational level within the agency. CIs human resources unit is currently trying to address this challenge
36
CZECHINVEST
through preparation of training and work with the line managers, who are not yet experienced in management techniques. Performance assessments. CI assesses its performance and reviews its goals at the end of every year. Twice a year (in March and September) employees are appraised on their performance. This appraisal is based on self-assessment and discussions with superiors. Criteria for assessing the performance of employees are: r Performance of job description r Managing of tasks terms, quality r Information and knowledge handing over r Achievement of goals set for the period between two assessments At the discretion of their supervisors, high performing staff members may receive independent bonuses totaling about 50% of their monthly salaries, in addition to the six-month bonus (ranging from 35 85% of the monthly salary). Training. Although in the past most new hires received on-the-job training, a recent CI practice is to provide new hires with a mentoring period in which they are guided by one of the experienced managers. All staff members of CI are offered the opportunity for self-development through various courses available from different providers. Table 1-4 below presents an overview of the training received by staff of each department in general. After considering the future needs of the staff and the overall strategy of the agency, the Human Resources Manager prepares the budget for training for every year.
Table 1-4 CzechInvest Staff Training
Professional Courses Building Law Energy Law Taxation Business Law Duties Investment Promotion Program Project Management Financial Analysis Effective Communication Soft Skills Assertiveness Presentation Skills Persuasive Argumentation Time Management
Departments IPR, PNR IPR, PNR IPR IPR IPR IPR, MKT, IPO, PNR, SRC IPR, MKT, PNR SRC, IPO MKT, PNR, IPR Departments IPR, AFC, IPO, HR IPR, MKT, IPO, SRC AFC, MKT, IPO IPR, AFC, PR
Language Courses General English Business English English Conversation German German - Goethe Institute French - French Institute French Conversation Spanish Conversation Spanish for beginners Japanese Computer Skills MS Power Point
Departments IPO, PNR, IPR MKT, PNR, AFC, HR SRC, MKT HR, IPR, MKT MKT, IPR, AFC MKT, IPO, IPR MKT, AFC IPR, MKT, SRC, PR, HR IPR, AFC, MKT, PNR SRC Departments IPR, MKT
Courses for Assistants English Correspondence
Departments All Assistants
Note: Codes refer to departments as follows: IPR is Industrial Property; AFC is Aftercare; MKT is Marketing; HR is Human Resources; SRC is Supplier Development; PR is Public Relations; PNR is Regional Development; IPO is Investment Projects.
CZECHINVEST
37
Exhibit 8 Scoring System Used To Monitor Foreign Offices
Table 1-5 Scoring System for Foreign Offices
Measures of Performance No. of articles and appearances in media No. of activities, seminars, conferences participated: - organizational involvement: - if exhibits and booths were set up No. of client meetings and contacts established Inquiries for and presenting Association of Foreign Investors (AFI) New leads generated No. of generated projects*
Points 2 points per occurrence 2 points per occurrence - additional 5 points - additional 5 points 1 point per occurrence
1 point per occurrence
3 points per occurrence Category A: 50 points Category B: 30 points Category C: 20 points Category SS: 40 points Category SRC: 12 points Category RZ: 10 points 10 points per occurrence 10 points per occurrence 5 points per occurrence
Project follow-ups Visits to Czech Republic by potential investors, and future follow-up with those who visited the country No. of completed projects* (official announcements, press releases)
Category A: 50 points Category B: 30 points Category C: 20 points Category SS: 40 points Category SRC: 12 points Category RZ: 10 points
* Note: Projects are categorized as: r A for projects with high strategic importance, multinational technology based projects; r B for projects with total investment amount exceeding or equal to US$20 million that are possible to realize within 6 months; r C for projects with total investment amount between US$5 million and US$20 million that are unlikely to be completed within 12 months; r SS for projects in strategic services (as defined by CI); r SRC for projects that will be sourcing from Czech suppliers; r RZ for small projects up to US$5 million that are initiated by CIs regional representatives and referred to the foreign offices.
38
CZECHINVEST
Exhibit 9 Image Building Among Investors
Image Building Tools. CIs marketing mix is based on what the agency defines as above the line activities: advertising, direct mailing, PR events, networking, seminars, and its web site; in addition, the agency defines under the line activities in its marketing mix as quality of service and high professionalism. Among the marketing tools used by CI are foreign offices, road shows abroad, participation in various marketing events, comprehensive support to investors, good relationships with existing companies, and references. The foreign offices of CI work with the Marketing Department and try to generate meaningful inquiries through direct marketing. The Director of the Investment Projects Department, Ludek Nechleba, reports, There are four points to pay attention to when promoting: have a clear mission statement; find out who your client is; know the product; and have the right methodology to achieve your objective. Use of Press Releases Rather Than Advertisements. CIs Marketing Department prefers the use of press releases, which can provide multiple messages to multiple audiences, to direct advertising, which they find to be a very costly and less effective option. The Director of Marketing Department, Robert Hejzak, says, Through press releases, the Department passes on interesting news on the Czech Republic to the world media. The list of media is profiled by the foreign offices; specific events, roundtables, seminars abroad are identified; missions of foreign journalists to the Czech Republic are organized; and press releases are prepared. While CI utilizes the services of a public relations company for its publicity in the US, it undertakes this activity itself in Europe. Strength of Direct Marketing Over General Marketing. CI prefers using direct marketing rather than general marketing as a promotional tool. The Director of the Investment Projects Department, Ludek Nechleba, says, General marketing is good, but limited in its effectiveness. Our experience has been that investors tend to send their consultants or second-tier officials to general marketing events, such as seminars or shows, to collect information, and do not discuss their businesses at such events. However, with a one-on-one direct marketing approach, the Department can reach key decision makers and have a private and confidential interview. The success of the direct marketing approach depends on getting the targets and the message right. In addition, CI runs a number of short and highly focused image development campaigns (e.g. the model location campaign) which are highly acclaimed and very successful both domestically and internationally. Existing Investment Projects as the Best Basis for Image Building. Recognizing the promotional value of the investment projects already in the Czech Republic, CI started publishing corporate testimonials on these projects, providing general information about them, such as the investments history, amount of investment, the project activity, employment figures, production figures and product information. Publication of the corporate testimonials proved to be a win-win activity; for the agency, they stimulated potential investors interest in the Czech product, and for the existing projects, they served as an effective public relations tool.
CZECHINVEST
39
Exhibit 10 Impact Statement by CzechInvest
This page replicates information produced by CzechInvest as an Impact Statement for dissemination to potential investors. The Czech Republic hosts over 55,000 foreign-backed firms across all sectors and manufacturing subsidiaries of nearly 1,200 foreign companies of all sizes. Famous multinational companies such as ABB, Continental, Daewoo, Danone, Ford, Matsushita, Nestl, Phillip Morris, Procter & Gamble, Renault, Siemens, and Volkswagen already have manufacturing subsidiaries in the Czech Republic. CzechInvest is today aware of over 1,200 manufacturing firms in Bohemia & Moravia that are backed by foreign capital and that range in size from ten to many thousands of employees. These firms are estimated to: r produce 65-70% of all Czech manufactured exports. r directly employ over 280,000 people in the Czech Republic, which accounts for roughly one-fifth of all manufacturing employment in the Czech Republic. (FDI firms with more than 100 employees employ more than 25% of the total Czech manufacturing workforce employed in that size segment). r will collectively create an estimated 22,500 net new jobs during the next twelve months. r safeguard an estimated 10,000 Czech suppliers in the manufacturing and service sectors and a minimum of 500,000 jobs in local supplier companies, approximately 10% of the total Czech labour force in employment. Full details of our recent surveys of these firms can be accessed in the section National FDI Survey.
Figure 1-2 Inflow of Foreign Investment to the Czech Republic, 1993 2002 (in billions US$)
Source: Czech National Bank, March 2003; 2003 - 2006: World Investment Prospects, EIU, 2002.
Figure 1-3 Capita as of 2002 (in US$) FDI Stock per
Inflow of Foreign Direct Investment The Czech Republic is an open economy and welcomes foreign direct investment in all sectors. We have been one of the regions most successful nations in attracting foreign direct investment with over USD 32 billion worth of foreign direct investment (FDI) recorded since 1990. Since 1999, the Czech Republic has sustained record flows of foreign investment of USD 5 billion each year with a record USD 8.4 billion in 2002.
Source: Vienna Institute for International Economic Studies, 2003.
40
CZECHINVEST
Exhibit 11 Annual Targets of the Marketing Department
All departments of CzechInvest set annual targets in line with CIs strategies and goals. For example, the Marketing Departments annual targets are: Quantitative Targets: r Direct mailing: 3000 r Number of new leads: 80 for Headquarters Office and 150 in total (for both headquarters and foreign offices) r Number of projects: 40 for Headquarters Office and 80 in total (for both headquarters and foreign offices) r Number of marketing events (exhibitions, seminars etc.): 30 r Number of advertisements: 15 Qualitative Targets: r To implement the new marketing strategy (2003-05) r To improve coordination with foreign offices r To introduce a new information system and CRM system
CZECHINVEST
41
Exhibit 12 CzechInvests Strategy
The Interim Business Plan for 1993-1995 introduced on January 1993 established the first set of strategies of CI. These strategies were revised first for the period of 1996-2000, and then later for the period of 2000-2004. As a result of the decision taken by the Ministry of Industry and Trade to merge CI with other entities under the Ministry, CI is will incorporate a new organizational strategy based on the new agencys mission. The new set of strategic goals for the agency are likely to include promoting the Czech Republic for attraction of FDI in new strategic investments, increasing competitiveness of the country by improving the quality of the business environment, and stimulating the development of enterprises in line with the National Development Plan. Although the Czech Republic is open to any kind of investment within its legal business framework, quality of investment is one of the criteria that CI utilizes in defining its marketing strategy. In its early years employment generation defined the quality of investment, but recently the high-value addition of the investment and its potential for technology transfer defines it. As a general rule, CI now targets investments in high-technology sectors,14 research and development centers and the services sector. The investment incentive scheme was modified to attract specifically this kind of investment. The strategic priorities, as declared by the Investment Projects Department, are: 1. Technology Centers/Strategic Services, Incubators 2. Microelectronics 3. Biotechnology 4. Electronics 5. Medicine Technology 6. Aviation 7. Precision Engineering 8. Automobile Industry 9. Chemical Industry, Plastics Aware that the issues of an active employment policy, and retraining and raising of the labor forces qualifications will come to the forefront as the Czech Republic becomes a full member of the EU, CI recently initiated discussions with Investors in People (IIP) International to implement the pilot stage of the Investors in People standard15 in the Czech Republic and signed a Memorandum of Understanding. This initiative, expected to receive EU financial support, is designed to help increase the human resources competitiveness of the Czech Republic.
14 15
High technology sectors as defined by OECD classification. Investors in People is the national standard used in the UK, which sets a level of good practice for training and development of people to achieve business goals. The Standard was developed during 1990 by the National Training Task Force in partnership with leading national business, personnel, professional and employee organizations, such as the Confederation of British Industry (CBI), Trades Union Congress (TUC) and the Institute of Personnel and Development (IPD). The Standard provides a national framework for improving business performance and competitiveness, through a planned approach to setting and communicating business objectives and developing people to meet these objectives.
42
CZECHINVEST
CzechInvests Strategy 2001-2006

(Source: CzechInvest)
The agencys strategic goals: 1. Transform CzechInvest from a marketing agency into a development agency that supports restructuring of industry in the CR. 2. Raise the inflow of foreign direct investment (FDI) on an ongoing basis. To this end, to provide complex information and services to investors that will positively influence their decision-making processes regarding locating projects in the CR and at the same time, to solidify CzechInvests position as the point of first contact for FDI in the CR. 3. Actively influence the quality of the investment environment in the CR on an ongoing basis through application of the investment incentive system, development of industrial properties and support of development of the subsupplier base. 4. Maximize the positive economic effects of FDI on the economic development of the CR as a whole and on the realization of regional economic development goals, and do this through universal support for realization of new investment aims and their potential subsequent expansion in the CR. Pay specific attention to the creation of new and retention of existing job opportunities in regions afflicted by restructuring of the industrial base. Focus on this goal through the local sub-supplier base support program, which is oriented towards establishing modern industrial technology and environmental protection technology and raising the local labour forces qualifications in a corresponding fashion. 5. Apply the potential positive economic benefits of FDI support when articulating an industrial strategy in program documents aimed at use of EU structural and cohesive funds. 6. Take part in defining and realizing the Czech governments industrial policy and use experience from the FDI field in this work.
Development of the agencys activity programmes. CzechInvest will orient its future strategy primarily towards the following expanded or new main programmes: 1. Development of industrial properties. For more than four years, CzechInvest has been building and expanding a database of properties and industrial buildings as an example of partnership between the public and private sectors. At present, the issue of reconstructing existing, markedly old and unsuitable buildings many of which were built prior to 1918 and merely devalue the properties on which they stand has come to the forefront. Revitalization of these existing industrial zones if they are in compliance with existing valid land use documentation is one of the agencys key tasks. The agency will assert this revitalization program as one of the priorities for co-financing from EU Structural Funds (following the example of Wales and Scotland). 2. Supplier network support programme. The first phase of the programme will take place in the years 1999 - 2001. This will be an initial phase, during which (Continued on next page)
CZECHINVEST
43
3.
4.
5.
6. 7.
actual and necessary databases containing contact profiles of the participating companies will be created. After 2001 we will be able to actively address those foreign suppliers who are lacking in the Czech supplier structure and persuade them to relocate their products in the CR. Development of qualifications. As our accession into the EU draws nearer, issues of an active employment policy, retraining and raising of the labour forces qualifications will come to the forefront (among others). Incentives for the development of human resources will play an ever more important role in the investment incentive system. Monitoring qualification requirements for new industrial technology will be part of a long-term program that CI will work on together with the MPSV of the CR and the National Education Fund. Research projects and impact on policy. A serious absence of Czech industrial and regional policy remains. CzechInvest has an information base and experience with which, in practical terms, it already contributes to the creation of proposals for these documents at the MPO. Expand CzechInvests current activity areas from the processing industry to include a group of strategic services (programming, distribution, logistics and telephone centers and telecommunication) and the area of energy (according to the privatization plan starting in 2001), and support direct investment in the areas of acquisitions and mergers. In cooperation with the MPO and EU Delegation, prepare a Forum for Development of the Business Environment in the CR and bring it to life. CzechInvests position. Government and regional support of economic growth of the CR will gradually be concentrated into two fundamental areas: r support of foreign investment and investment overall, r specific support of domestic industry and business including support of research and development (innovation, small and medium-sized enterprises).
44
CZECHINVEST
Exhibit 13 Investment Mediated by CzechInvest
Table 1-8 below represents the investment mediated by CzechInvest, broken down by main sectors of investment, the total FDI committed per sector, and the number of firms in each sector. Table 1-9 classifies the declared investment projects by their type.
Table 1-8 Investment Mediated by CzechInvest Sector FDI (US$ millions) 3847.41 1433.07 706.11 397.50 295.80 126.46 147.80 244.66 187.35 Number of Firms 82 45 21 16 12 8 6 28 17 Table 1-9 Types of Investment Projects in the Czech Republic Project Type Percent of total FDI 2.0 47.5 5.0 34.0 1.5 3.0 3.0 4.0
Automotive Parts Electronics (including computers) and Electro Technical Chemicals, Plastics, Biotechnology Textiles Wood Processing, Printing, Packaging Construction Materials Glassware Precision Engineering, Aerospace Others
Acquisition Greenfield Projects Brownfield Projects Second-Phase Expansion Projects Strategic Services Technology Center Joint Venture Strategic Cooperation
CZECHINVEST
45
46
CZECHINVEST
Executing a turnaround strategy to focus on attracting FDI
THE
CASE STUDY OF
UGANDA
INVESTMENT AUTHORITY
In the 1990s, Ugandas government embraced a series of major economic reforms that enabled the country to shape a solidly pro-investment environment and an era of economic growth. Uganda Investment Authority (UIA), established in 1991, is an award-winning agency now viewed in many respects as a model in Africa. However, in 1999 UIA suffered a setback in its management leadership and confidence among donors, a turn of events that prompted sweeping changes at the agency. UIA embarked on a strategy that would literally transform the fundamentals of its operation through a redirection in the agencys focus, funding, management, structure and activity. This case study traces UIAs recent experience through the execution of its turnaround strategy, which redefined the agencys role and set a new course for attracting and servicing investors. The case of UIAs turnaround resonates with two recurring themes: focus and leverage. In order to quickly overhaul the operation with limited resources, the strategy called for a totally new way of handling investors; it addressed their primary needs with a streamlined structure that focused on proactive, targeted promotion and specialized client facilitation and aftercare. This focus on core functions required instilling a culture of investor service and a system for account management among the agencys small staff. To leverage its impact, knowledge and resources, the agency reached far and wide into Ugandas local community. This experience offers lessons in creative and resourceful implementation. UIAs outreach eventually incorporated myriad points of leverage, including: a network of district investment promotion offices, numerous private sector alliances, and a series of business programs designed to strengthen and support Ugandas base of domestic investors.
INVESTING IN DEVELOPMENT UIA
47
48
Introduction
In November 2000, Wagagai Limited, a Danish-owned company in the market of growing and exporting flowers to Europe, announced an investment of US$2.5 million in Uganda with an intention to employ 600 persons. In March 2001, a UK-based company involved in coffee processing and marketing, Kaweri Coffee Plantation Limited, announced an investment of US$6.9 million in Uganda to employ 2,752 people. These investments were the direct result of targeted investment promotion efforts by Uganda Investment Authority (UIA), which was awarded the Best Investment Promotion Agency (IPA) of the Year in the Africa and Middle East region in 2000.1 Established in 1991, UIAs experience promoting foreign direct investment (FDI) into Uganda had been among the longest and most fruitful in Sub-Saharan Africa. UIA would license more than 2,000 projects with the potential to employ up to 189,727 people between 1991 and 2003, realizing about half of these projects as actual investments. In 2002 alone, the agency would license 161 projects worth US$896 million in planned investments. In winning the award, the agencys Executive Director, Dr. Maggie Kigozi, attributed UIAs success mainly to economic reforms put in place since 1991, adding, we have continued to improve as an attractive center because of our privatization and liberalization policies where government pulled out of business leaving the ground fair for players. The existing private/public sector dialogue (in Uganda), putting UIA in place as the organization between government and the private sector, among others, helped Uganda achieve the award. Yet just the year before UIA was recognized with the award, the agencys board and donors had initiated a bold and sweeping strategy that would literally transform the fundamentals of UIAs operation. When fully executed, the strategy would result in a turnaround a redirection in the focus, funding, management, structure and activity of the agency. The example of UIA, now viewed in many respects as a model in Africa, parallels the countrys extraordinary rise from political and economic collapse to shape a solidly pro-investment environment and an era of economic growth. Within Uganda, the agency is considered a leader in thought and action, and a strong advocate for good policy and practice. This case study traces UIAs experience through the execution of its turnaround strategy. This process, although set in motion at the board level, is also defined by the agencys 1) dynamic and creative implementation, 2) congruence with national development goals, and 3) adherence to its strategic objectives, despite persistent funding constraints and unexpected challenges. The example of UIAs recent experience is intended to demonstrate the power of a streamlined strategic focus that mobilizes the organization and private/public sector stakeholders toward the attraction of FDI. In shifting its focus from general investment services to proactive promotion among targeted investors and specialized client facilitation and aftercare, UIA was able to maximize the use of its limited resources toward attracting investment. The case also illustrates UIAs leverage through outreach to Ugandas diverse business community. While garnering local support for the agency and its efforts, the agencys commitment to improving Ugandas investor base would eventually encompass existing clients, targeted foreign and domestic investors, potential joint venture partners, small businesses and entrepreneurs, as well as a range of private-sector organizations.
49
The example of UIA is relevant in the strategic dimensions of its turnaround from several perspectives within the investment promotion agencys role as a competitor in the market for investors, an economic development organization, a client service operation, and a public-private sector liaison office. It is also instructive to consider the key drivers, in the form of tools, programs and techniques, employed during implementation of the strategy to support UIAs focus on its core functions. In addition, this case study highlights common challenges associated with reorganization and strategic change in the practice of investment promotion, including: 1) maintaining focus and long-term continuity, 2) adapting to meet strategic requirements within budgetary constraints, and 3) building credibility for a reorganized operation or revised program.
Table 2-1 Summary Results of Ugandas Economic Reforms Economic Indicator Total GDP (US$ billions) GDP Growth rate GDP Per Capita (US$) Inflation Lending rates Exports (US$ millions) Imports (US$ millions) Poverty 1990 2001
Background
In the 1960s the Ugandan governments policy was supportive of industrial development, and the Uganda Industrial Act of 1963 promoted both local and foreign investment. The Foreign Investment (Promotion) Act of 1964 provided legal protection for FDI against compulsory acquisition by the state and guaranteed rights to repatriate capital, interest, and dividends. In 1970, the government, displeased with British and Asian control of the commercial and industrial sectors, increased its own shares from 51 to 60% in major manufacturing companies. In 1971, Idi Amin overthrew the civilian government. The Britons and Asians were expelled from the country, and foreign assets and businesses were expropriated. In 1977, the military government tried to revive FDI flows through the 1977 Foreign Investment Decree that exempted foreign investors from paying import duty and sales taxes on plant and machinery for approved enterprises. However, these were not retroactive exemptions and did not apply to investments under US$571,000. Although the military government was overthrown in 1979, there was little FDI in Uganda between 1980 and 1985. The government elected in 1986 had prepared a bill to correct the countrys negative image, but this was not implemented until 1990. The government began undertaking major macroeconomic reforms starting in 1990, and in 1991 the Investment Code replaced the earlier decrees and laws, and established the UIA.
3.73
6.34
5.1%
6.0%
150
330
243%
4.6%
40-60% 14-28%
510
511
531
1,863
56%
35%
Economic Context
Source: UIA.
In the 1970s and early 1980s, the Ugandan economy suffered heavily from civil strife and economic mismanagement. As a result of efforts by the new government, which came into power in 1986, the economy started showing signs of recovery in the beginning of the 1990s. The notable economic measures instituted include: the privatization of state enterprises,2 the abolition of state monopolies, the removal of foreign exchange controls and general liberalization of the economy. Despite its limited size, the Ugandan economy has proved to be one of the most dynamic in all of Africa over the past decade. (See Exhibit 1: Economic Indicators of Uganda.) Inflation has dropped from double to single digits in the last nine years, while interest rates have also decreased from over 40% to around 25% in the same period. The GDP growth rate reached as high as 8% in 1995 and 1996. These positive economic indicators have led to steady and continuous improvement of the business environment, to the benefit of the private sector. (See Table 2-1: Summary Results of Ugandas Economic Reforms.) Uganda has been active in various regional economic integration arrangements. The country is a member of the Common Market for Eastern and Southern African
50
States (COMESA),3 a region with a market of about 380 million people (in 2001). Together with Kenya and Tanzania, Uganda formed the East African Community (EAC), which is establishing the East African Customs Union under the EAC Treaty. The customs union is of potential interest to investors because it will establish duty-free trade among the three countries, providing access to a market of 80 million people. Agricultural production represents a considerable portion of Ugandas GDP and generates over 90 percent of its export earnings. Ugandas climate year round rain and moderate temperatures creates an inherent advantage in agriculture. The potential for substantial increases in agricultural production reportedly exists in a wide variety of areas, including non-traditional exports such as flowers, vanilla, silk and other specialty items, as well as cotton. In addition to agriculture, Ugandas other main sectors are manufacturing, which has shown signs of growth over the last decade, construction and infrastructure. Uganda offers abundant natural resources for manufacturing to serve the region. The service sectors also are viewed as a growth area. Although Uganda has achieved impressive progress since 1986, it remains among the poorest countries in the world, according to the Human Development Index rankings of the UNDP,4 with low per capita income and high rural poverty.
Table 2-2 FDI Inflows to Uganda, 1989 2001 Year FDI (US$ millions) 23 88 121 121 175 210 222 254 228

Ugandas FDI record has fluctuated sharply since its independence. From the postindependence period to 1970, FDI figures were on the rise. During the 1970s, and between 1980 and 1985, there was a decline in FDI to negligible levels. Since 1986 FDI has trended upward, and Uganda has attracted increasing levels of investment in recent periods. To a large extent the noteworthy strides made by Uganda in attracting FDI can be attributed to President Yoweri Musevenis policies to restore political stability, introduce macroeconomic stabilization and initiate a marketfriendly reform program. Political stability, sound macroeconomic fundamentals, protection of investment, enforcement of property rights, relaxation of capital controls, and privatization were among the broad-based economic reforms that helped improve the prospects for encouraging FDI into Uganda. The legal and regulatory environment has also been conducive to FDI. Uganda has received high scores in investor surveys on investment protection and on favorable policy toward repatriation of profits. The fast pace of privatization has facilitated rapid FDI inflows. Double taxation agreements with Western countries, the adoption of liberal foreign exchange policies, a stable currency and macroeconomic discipline have all increased investor interest in Uganda. As shown in Table 2-2: FDI Inflows to Uganda, 1989-2001, the annual FDI figures also display a sharp increase starting from the mid-1990s to 2000, although there was a slight decrease in 2001, when Uganda registered US$228 million in FDI. FDI as a percentage of GDP, as a percentage of gross domestic fixed investment and as a percentage of exports all showed notable increases in the late 1990s. (See Table 2-3: Indicators of Relative Magnitude of FDI Inflows to Uganda.) In 2002 alone, UIA licensed 161 projects worth US$896 million in planned investments (local and foreign).5 (See Exhibit 2: UIAs Investment Record.) Ugandan investment projects accounted for 38 percent of the total, while foreign capital alone accounted for 36 percent. Joint venture projects between Ugandans and foreigners accounted for the remaining 26 percent. The leading investor countries in Uganda (the United Kingdom, Kenya, India, Canada, and the United States) accounted for more than half of the total number of foreign capital investment projects.6
1989/94 (average) 1994 1995 1996 1997 1998 1999 2000 2001
Source: World Investment Report 2001, UNCTAD; Bank of Uganda.
Table 2-3 Indicators of Relative Magnitude of FDI Inflows to Uganda Year FDI/ GDP 0.01 0.08 1.78 FDI/ FDI/ GDFI Exports 0.04 0.57 11.69 0.06 1.08 15.80
1987-90 1991-94 1995-99
Note: GDP: Gross Domestic Product, GDFI: Gross Domestic Fixed Investment. Source: World Bank and IMF staff estimates.
51
Uganda Investment Authority

UIA was established as an independent agency under the Investment Code of 1991, an Act of Parliament, to promote private-sector investment. (See Exhibit 3: Mission and Goverance.) The strong government backing at its inception reflected the significance of the agencys mandate, and set a tone of respect and support for UIA that would bolster its efforts over the years. The Investment Code identified 24 priority sectors based on their comparative advantage and potential impact on the national economy, and included them in the long list of sectors that could be granted investment incentives. The agencys early efforts focused on providing a one-stop service to approve applications for incentives, and to issue licenses to investors. Between 1991 and 1992, UIA set up teams to respond to investor requests, rather than a formal departmental structure, and did not engage in efforts to initiate leads or inquiries. At this time, UIA was organized as five levels: 1) the Board of Directors; 2) the Executive Director; 3) investment professionals and support technical staff; 4) support assistants; and, 5) general support staff.7 In 1992, UIA developed a strategic plan, entitled Horizon 2000,8 to cover an eight-year period in four two-year plans. The quantitative targets of Horizon 2000 were a minimum annual increase of US$500 million in total investments, and a minimum annual increase of 25,000 jobs created by projects licensed by UIA over the course of eight years. The qualitative targets, as specified by the strategic plan, furthered important development goals in terms of the workforce and business climate, and specified types of targeted investments. An increase in investment projects had placed new demands on the agency by 1992, requiring changes in the operation to serve the varying needs of projects at different stages. UIA was reorganized into six functional divisions to focus on: investment services, promotion, facilitation and institutional development, which included information services, policy and planning and corporate services. Each division was assigned a manager and junior professionals. In 1994 the board modified this structure, based on the recommendations of UIAs top management and technical advisors from USAID and DFID, once again to address the increasing volume of projects, but also to place proper emphasis on sector priorities in manufacturing and natural resources. The operation now included seven divisions: investment facilitation, manufacturing, natural resources, general promotion, media and information management, finance and accounting,9 and corporate services. Ugandas comprehensive economic reforms during the mid-1990s swept away some procedures that had been required of investors, including the compulsory registration of investment. In addition, the Harmonized Commodity Code System, adopted in 1995, eliminated import duties on capital goods and quantitative restrictions on imports, in effect streamlining Ugandas incentives package through legislation. The dramatic impact of these policy changes for UIA was the dissolution of the agencys core administrative function the authorization of incentives and a drastic reduction in staff-intensive licensing activity. The agencys administration of investor incentives, which had become increasingly cumbersome and time consuming, and did not adhere to a transparent set of rules, was no longer a necessary service for investors. These changes prompted a re-evaluation of UIAs primary functions, and a revision of UIAs Horizon 2000 plan. Redefining its strategic priorities, the agency shifted to focus on enhancing public visibility, the proactive targeting of investors and overseas marketing, and investment monitoring and support. The plan also called for the development of an information center for both electronic and printed information. However, while these initiatives were an improvement on the past, they lacked clear performance targets. The end result was an increasing number
Highlights of UIAs Horizon 2000 Plan Objectives r r r r r r r Use of new technology and related training Increase in skilled workers, professionals and managers Control of environmentally harmful projects/practices Projects in all Ugandan regions and priority sectors Increased volume of export-oriented businesses Private-sector operation of 2+ export promotion zones Growth in Kampala Stock Exchange transactions from UIA-assisted firms, and in financial support network
52
of licensed projects that never materialized, raising the issues of the quality of attracted investments and the feasibility of the planned projects. By the end of 1999, it became apparent that UIAs investment promotion efforts needed a tighter focus within specific sectors, priority markets and investors, and a strategy that could be measured against quantifiable targets. Yet the larger issues of leadership and funding took precedence, following a turn of events that threatened UIAs viability and credibility as an institution. Beginning in 1996, the organization suffered a setback in management leadership and confidence among donors, resulting in a 3-year period of flux. During this time, UIAs board acted to replace two agency Executive Directors. Between 1991 and 1998, the agencys operating costs had increased as the staff grew from 20 to 54, with a commensurate increase in staff expenses from 31 to 73 percent of the total budget, even as UIAs regulatory functions became less staff intensive. Donor funding ceased in 1998 due to accountability issues. By 1999 UIA faced pervasive challenges that rocked the agencys fundamentals. In a few short years, the agency had gradually lost three pillars of its foundation the leadership of its CEO, donor funding and organizational focus. It was time for a realistic and actionable strategy to turn UIA around, and to restore the momentum that characterized Ugandas pro-business path to development. In partnership with UIAs donors, the Board of Directors acted to rectify the situation, initiating in 1999 a strategic planning process guided by a management change consultant. This exercise resulted in recommendations to restructure the organization, refine its focus and target its promotional efforts. After engaging in appropriate discussions, the board quickly approved the recommendations and required their full implementation. When progress was not forthcoming, a search for a new CEO was conducted. In late 1999, the agencys current Executive Director, Dr. Maggie Kigozi, was appointed to put the plan to action.
UIA Components of the World Bank Private Sector Competitiveness Project Market research and marketing services: Nine country research reports, including investment trends, produced; database of target companies compiled. Marketing and advertising: Materials produced and distributed; focused advertising campaign in publications. Investment lobbying: Outward missions in five regions; subsequent inbound missions of visiting investors. Investment aftercare: Existing investors contacted and offered services. Results: A follow-up assessment of UIA project activity concluded that $830 million was invested as a result of these four components, amounting to $1,000 for every $1 spent. A detailed analysis confirmed that secured investor projects closely linked to the outward and inbound missions. Also, 500 of 1800 existing investors contacted received aftercare through site visits.
The Turnaround Strategy

Effective in 2000, the strategy realigned UIAs focus at several levels around three core functions: investment promotion, investment facilitation and aftercare. Essentially, the revised promotion function would serve as the impetus for overall change, moving UIA from general image building and information provision to a highly segmented, sector and country-specific targeting approach. The promotion function would also pave the way for sector and issue-focused facilitation and aftercare. Although targeting was not altogether new to UIAs agenda, the refined targeting component of the strategy would address Ugandas competitive position from a broader, market-based context. The strategy called for emphasis on targets derived from an analysis of Ugandas comparative and competitive advantages as a location, as well as from other studies on Ugandas private sector development. The intention was to identify the most likely potential investors that also fit within Ugandas development objectives, and then apply the increased understanding of Ugandas competitive position to drive UIAs marketing and outreach activities. At an operational level, the strategy required a realignment of the organization to reflect UIAs core functions and to maximize potential staff and other resource efficiencies. (See Exhibit 4: Organizational Structure, Staffing and Training.) In addition, coincident with national development initiatives set forth the same year, the agencys activities would support efforts to enhance the competitiveness of Ugandas private sector.10 In summary, Ugandas plan for investment centered around four key objectives, to: 1) increase exports, 2) create jobs, 3) bring in capital and 4) attract technology. A series of deliverables to provide the basis of a proactive investment promotion program was incorporated into the strategys execution, as
53
part of a larger World Bank-sponsored project also geared to Ugandas private sector.11 Initially however, the strategys execution required attention to UIAs basic foundation - its management, funding and organizational structure.
Advice from the CEO . . . Delegation is Critical Dr. Kigozi employed the following tactical sequence to leverage her efforts and establish an organization responsive to investors, the government and other stakeholders. 1) 2) 3) Put a team in place. Build capacity among the team. Delegate responsibility widely among team members.
Management. Under the direction of its chairman, William Kalema, UIAs board was able to quickly address the fundamentals, including the agencys need for a CEO capable of leading the agency through the reorganization and beyond. Dr. Kigozi, a member of the UIA board, was tapped to implement the turnaround strategy. She drew upon her private sector expertise and energetic management style to reinvigorate the organization, setting both the tone and pace for the task at hand. Dr. Kigozi, a practicing physician earlier in her career, had most recently led the public relations effort at Crown Bottlers Ltd., makers of Pepsi, Mirinda, and 7UP in Uganda. When asked about the selection of Dr. Kigozi to head UIA, Chairman Kalema remembers, she beat 59 other applicants, 34 Ugandans and 25 foreigners, to the post. Dr. Kigozi brought to the Uganda Investment Authority a wealth of relevant experience and is a well known figure in the Uganda private sector. Daudi Ndiwalana, marketing director of Uganda Manufacturers Association, noted the energetic management team of the authority [UIA] has brought awareness to Uganda that investment promotion is possible.
Funding. Prior to 1999, financial support to UIA was provided by two sources: the Government of Uganda and the donor community. In its early years the agency was heavily dependent on donor agencies12 to supplement the governments contribution, which was allocated for operating expenses only. At the onset, more than 90% of UIAs annual budget came from donors and 10% from the Government, but this trend would gradually reverse. Over the years UIA adroitly assembled a range of donor-sponsored programs to leverage the agencys activities and impact beyond its operating budget. (See Exhibit 5: Budget and Sources of Funding.) However, reliance on donors presented challenges in terms of focus and sustainability; to secure adequate funding often required a skew in focus and work plan toward projects that were not funded over the long term. By 2000, concurrent with the restructuring, UIAs budget called for the agency to be totally government funded. (See Exhibit 5, Table 2-6: Sources of Funding for UIA.) Through a reduction in operating expenses, achieved through downsizing, staff cuts and outsourcing, the turnaround strategy aimed to internally fund the agencys focus on core activities. However, after the restructuring UIA continued to face funding constraints. The Government was not always able to meet its commitment, in effect curtailing programs and precluding the outsourcing of certain activities as planned.
The Evolution of UIAs Operational Structure: Levels & Divisions

1991 Executive Director Professional/Tech Staff Support Assistants General Support Staff 1992 Investor Services Facilitation Services Investment Promotion Information Services Policy & Planning Corporate Services 1994 Investment Facilitation Manufacturing Natural Resources General Promotion Media & Information Management Finance & Accounting Corporate Services 1999 Investment Promotion Facilitation & Aftercare Strategic Planning & Development Finance & Administration Land Development
54
Organizational Structure. The plan adopted by the board in 1999 called for a streamlined operation that reflected the core functions of the organization. The restructuring exercise resulted in a reduction in the number of divisions from seven to five, and in staff from 54 to 33, creating a leaner, more focused organization and a larger non-staff operating budget. (See Exhibit 4: Organizational Structure, Staffing and Training.) The deputy executive director and corporation secretary positions were abolished; the administrative staff was reduced. The regional investment centers13 were phased out, and UIA activities were regrouped into five key functional areas: investment promotion, investment facilitation and aftercare, strategic planning and development, finance and administration, and land development. Based on the revised structure, UIA developed: 1) new job descriptions and hiring criteria, 2) reporting procedures, 3) divisional objectives, 4) annual departmental budgeting and work plans, and 5) performance indicators. A new accountant was hired and an accounting software package was introduced to help track and implement the budget. All of the operational changes, particularly the planned outsourcing, were expected to boost the agencys overall productivity through a projected 32% increase in staff time. However, insufficient funding, as discussed above, prohibited the outsourcing of activities called for in the plan, creating unmanageable workloads for some agency staff over the long term.
UNIDO-UIA Investment Promotion Unit The Government of Italy and the United Nations Industrial Development Organization (UNIDO) concluded a trust fund agreement in October 2000 for the establishment of the UNIDO-UIA Investment Promotion Unit within UIA. The objective of the program is to support Ugandas efforts to stimulate industrialization aimed at enhancing the competitiveness and sustainability of industrial development, and the development of local entrepreneurship capacity. Specifically, the Unit aims to provide technological support to medium and small-scale industries in Uganda, to identify joint venture partners for Italian and Ugandan companies, and to enhance direct interaction between Uganda and foreign entrepreneurs and investors, particularly from Italy.
Implementation Approach & Activities

While the new strategy and associated work plan shared objectives of past UIA plans, its execution would ultimately differentiate the strategy from its predecessors, and determine its success. The restructuring had created an organizational map for change within the operation. Now the strategys execution rested on the agencys effective implementation of core functional activities. Each of the core functions, especially promotion, would incorporate new methods and tools to support mission-critical activities, such as identifying, and then marketing to, the most likely investors. According to Dr. Kigozi, the restructuring resulted in a total change in how investors were handled. It was necessary to efficiently manage an increasing volume of investors with a smaller staff. UIA moved from hands-on monitoring of individual investors - which had often segued into advising them on their businesses - to identifying and addressing common investor problems and then advocating for long-term policy solutions. To instill an agency-wide focus on promotion and service, Dr. Kigozi set up project teams to meet and assist investors, reminding all staff members, including those in finance and administration, Your main role here is the investor. The flexibility of staff members, according to Dr. Kigozi, enabled this versatile team approach that deployed everyone on staff as a promoter. The agencys management of accounts, aided by project teams, would actually blur divisional lines as the focus on attracting and servicing priority investors intensified. The agencys staff, which was primarily comprised of experienced employees, was trained and equipped14 to fully operate in spite of UIAs heavy outof-office requirements. The entire staff, according to Dr. Kigozi, became versed in UIA functions and in working with the press. Country specialists, assigned from among the agencys staff, led teams to respond to individual projects. Some staff members were knowledgeable in sector areas as well, and also called upon sector specialists in the ministries.
55
Targeting and Outreach

The strategy systematically transitioned the agencys promotional efforts from general marketing to the targeting of high priority sectors, key geographic areas and investors with a high probability of investing. This transition would drive promotional activity going forward, as reflected in UIAs 2001-02 and 2003-04 plans. UIA began to build a knowledge base and research capacity on a limited number of priority sectors in specific country markets. Ten countries were identified as those offering the greatest number and likelihood of investors. They were selected based on: 1) past UIA efforts and experience dealing with the country, 2) past and projected FDI inflows to Uganda, 3) international policies regarding trade and investment, 4) individual market characteristics, and 5) each countrys record of a bilateral relationship with Uganda. The agency would subsequently research and produce reports that outlined investment trends for each country market. To evaluate possible targets among both sectors and countries where potential investors were represented, the agency relied heavily on studies undertaken by various programs on private sector development in Uganda, and on an analysis of Ugandas comparative and competitive advantages. Based on this evaluation, UIA identified six priority sectors, reflecting a diverse mix of products and services that spanned raw materials, commodities and information technology. A database of target companies was compiled to facilitate segmented outreach, based on an overlay of the sector priorities with the country markets. The database would also eventually include a joint-venture matchmaking capability to help address investor interest in locating on-the-ground partners. The new basis of information enabled UIA to create tailored promotional literature for immediate distribution to thousands of targeted investors, and a focused advertising campaign in selected business publications.15 The director of the Investment Promotion Division, Amos Lugolobi, contends that providing general information on Uganda - its economy, its legislation and it labor availability - had not yielded positive results in terms of convincing potential investors to invest in Uganda: What really matters to investors, he says, is information specific to their lines of business. In support of their promotional efforts, UIA supplied investor materials to all 26 Ugandan embassies and four consulates abroad and representative offices of foreign countries in Uganda. UIA also personally carried its promotional message overseas to potential investors. To help overcome negative investor perceptions and wariness about visiting Uganda, the agency organized outward business development missions to country targets in five global regions. These missions, involving government leaders and businesspeople operating in the priority sectors, were intended to stimulate reciprocal inbound missions and investor visits. By acquainting potential investors with actual opportunities, partners and suppliers, as well as a grass-roots sense of Ugandas pro-business climate, the agency aimed to lobby and close suitable projects in the short term, an outcome that more than satisfied expectations, landing over a hundred viable projects.
UIAs FDI Targets By Sector: r Agriculture & Agro-Processing r Mining r Tourism r Packaging r Services (Finance, Education, Medical) r ICT (Information Communications Technology) By Country: r South Africa r France r Egypt r United Kingdom r Denmark r Netherlands r India r China r Malaysia
Account Management and Service

To help follow investors progress as they move through the pipeline, the agency instituted an account management approach to track its cycle of follow-up. The process entailed targeted marketing, then selling Uganda to potential investors through various levels of evaluation, and finalizing a planned commitment to invest, all typically responsibilities assigned to the promotion staff. However, the account management approach required close teamwork between UIAs divisions; many
56
of the support activities necessary to influence potential investors also were considered hallmarks of high-quality facilitation and aftercare. At UIA these included good rapport and regular working sessions with existing investors, trade associations, government agencies, ministries and sister institutions. Consequently, the reorganization resulted in increased focus on the external communications and fact-finding activities that would help support the process of securing new projects, expansions and re-investments. To help land new projects, UIA capitalized on positive experiences of existing investors in Uganda, using them as references during its promotion efforts. To encourage existing investors to reinvest, either through expanding their facilities or through diversification, the agencys promotion division organized separate meetings with installed investors to identify and understand their problems, and to design appropriate solutions, especially in the areas of immigration, tax administration, double taxation, security, insurance and infrastructure.
Investor Facilitation Support and Services at UIA r Coordinating regular consultative meetings (with investors, sub-sector associations, officials of ministries and line agencies); Maintaining dialogue with private and public sector agencies to identify strategies that improve private sector performance; Involving investors, sub-sector associations and officials of ministries and line agencies in investment promotion activities, such as domestic and overseas missions, and as reference people for potential investors; Discussing with investors new investment opportunities; Providing valuable information to investors about sources of financing, and facilitating the linkage to these sources; Providing advisory services to investors on marketing, clean technologies, and available training opportunities; Working with sister institutions, for example UMA and PSFU, to identify training needs for investors and to train investors, by sectors, in special business skills.
Strengthening the FDI Support Network

Under Dr. Kigozis leadership, UIA broadened its network of allies and domestic outreach to address the local investor base while building support for the agency and its revised focus. This tactic helped the agency reinforce its credibility among investors and involve the local community in the development of FDI, which leveraged UIAs impact in spite of limited resources and cuts in manpower. As a relatively mature agency with a respected board and clear mandate, UIA had built solid relationships over the years with key public and private sector stakeholders, including investors, the government, international development agencies, and Ugandan and foreign missions. Now Dr. Kigozi focused the agencys efforts primarily within the domestic private sector and among local districts. Private Sector Allies. According to Dr. Kigozi, the private sector input UIA receives helps us not only to better understand the issues that impact all investors in Uganda, but also to build a network of allies. To efficiently handle a range of investor issues, the agency cultivated Ugandas community of private sector organizations.16 In several cases, this involved the development of new trade and interest-specific associations to help identify the issues that affected Ugandas priority sectors, such as ICT. Over the years, a number of general investment issues had been effectively resolved, prompting UIA to adopt a sectoral approach to issues that supported its priority target strategy. The sectoral groups also played an integral role in attracting new investment; UIA discovered that investors, rather than seeing competition in the membership of trade associations, find strength in the influence and camaraderie of these groups. The agency enlisted executive directors of associations to host potential investors, and requested the associations financial support in funding staff travel to seminars and meetings. UIA formalized its reliance on private sector inputs from association allies through several means. First, private sector agencies are represented on UIAs board, namely Uganda Manufacturers Association and Uganda National Chamber of Commerce and Industry. Second, UIA is represented on a number of boards of private sector agencies, for example, the Private Sector Foundation Uganda (PSFU), Uganda Manufacturers Association (UMA) and Uganda Export Promotion Board (UEPB). UIA also undertakes joint programs with PSFU, UMA, National Chamber of Commerce, Uganda Small Scale Industries, and Uganda Women Entrepreneurs Association Limited (UWEAL).17
r
r r
57
Local investor support from UIAs Uganda Desk r Project profiles (brief business plans) including estimated costs of production and profit margins for sectors where Uganda is competitive. A weekly newspaper advertisement on an opportunity for local investors. Free, weekly seminars on business topics, such as access to finance, exporting, and ICT. These events often draw 500 attendees. Personal invitations to reporters and press articles about UIAs local activities.
Local Investors. While FDI was the primary focus among types of investments UIA aimed to attract, Dr. Kigozi also recognized the significance of an increasing domestic investor contribution to the overall strategy. By helping to build up local businesses, UIA would enhance the potential of joint ventures, a preferred structure among foreign investors that did not expect to place their managers at Ugandan facilities.18 Consistent with the governments emphasis on private sector initiatives, the agency set out to address what it viewed as a major constraint to FDI Ugandas underdeveloped local investor base. To further this effort, the agency solicited private sector participation in its series of overseas missions in 2000-01, and in subsequent visits by potential investors to Uganda. From its Uganda Desk, UIA initiated a broad range of practical and cost-effective programs to support and expand the capabilities of local businesses in sectors where Ugandans could be competitive.19
r r
District Network. Through establishment of a government-funded district network, UIA leveraged its ability to offer investors its core functions and a physical presence throughout Uganda. UIAs activities had traditionally been concentrated in Kampala, and to a lesser degree, Jinja. As a result, other towns had not been fully informed of the role and activities of UIA, or of potential benefits of investment to their communities. UIA initiated a capacity-building program that would establish the local governments as focal points for investment promotion, while enabling UIA to present alternative sites to prospective investors. UIA trained officers in 56 districts in investment promotion, facilitation and aftercare, as well as project management and strategic marketing. The officers were paid by their districts, under the governments decentralization policy that apportioned budget and civic responsibilities at the district level. Although the officers have no formal relationship to UIA, the network has generally helped further the agencys objectives, especially after Dr. Kigozi advocated for the districts support over the public airwaves. She says they used to ask why UIA wasnt developing the local community, but now (community leaders) see the positive impact of investment on jobs and tax revenues.
Next Steps
In the execution of its turnaround strategy and reorganization, UIA put in place a sound infrastructure for attracting and servicing priority FDI projects going forward. This occurred at both the strategic and operational levels; the execution required a revised focus, annual budgets and work plans, new approaches to projects, account management and systems, sector and country targets, extended outreach and staff and resource efficiencies. The agency demonstrated both creativity and resourcefulness in its implementation of a multi-faceted plan that has not realized its full outcome in terms of investment impact, although several priority projects have come to fruition, the project pipeline of licensed projects is robust, and Ugandas FDI is trending upward. Dr. Kigozi reports good progress among the service sectors, particularly in health, education, tourism, ICT and finance. The agency surveys the intentions of 2,600 licensed investors in facilitation, but must still contend with the inevitable decision time required for 2-3 year feasibility studies and other forms of location evaluation. UIA has yet to implement full-scale monitoring and evaluation of its efforts, but recognizes their necessity in documenting the agencys effectiveness as an institution and the success of individual programs. (See Exhibit 6: Performance Measurement.) UIAs next challenge rests in building long-term continuity for the programs
58
initiated by the strategy and its objectives. The agency continues to face budget constraints, which affect its ability to sustain the turnarounds focus and impact, even though the strategy helped identify where UIAs primary efforts should be concentrated and which activities deliver positive results. Furthermore, the restructuring left the agency staff with unmanageable workloads; funding shortfalls meant UIA was not able to follow the recommendations of the management change expert to outsource certain activities. Dr. Kigozi, who is practiced in donor relations, allocates her time to secure funding for the continuation of programs proven successful in the strategys implementation, such as the outward missions. While the agency is technically funded in total by the Ugandan government, donor funding is still a major factor playing into the agencys agenda and core functions. Meanwhile, a second restructuring exercise was undertaken in early 2002 following an initiative by the President of Uganda to plan the merger of UIA with two other promotional agencies, the Uganda Export Promotion Board (UEPB) and the Uganda Tourist Board (UTB). The planned restructuring created anxiety among UIA staff, resulting in a number of employee resignations. The recommendations from this exercise were recently shelved, perhaps permanently, after each of the agencies reported improved results. UIA also faces the positive challenge presented by new investor opportunities in Uganda. The EAC Treaty, the recent trade agreement between the East African Community of Uganda, Kenya and Tanzania, effectively creates a single, 80-million consumer market for investors in terms of duty-free customs among the three countries. This opens the possibility for UIA to further promote the countrys potential for serving all three markets in its target sectors, although the agency will also need to finely differentiate for investors Ugandas advantages over its EAC neighbors. In addition, the 1000-hectare Kampala Industrial and Business Park and export-processing zone (EPZ) under construction will be developed and managed by UIA, a large undertaking for the agency. Although British American Tobacco has committed to a US$43 million project in the industrial park, UIA has encountered snags in funding the advance facilities and infrastructure necessary to generate adequate investor interest. Both of these situations are significant in terms of their FDI potential for Uganda. They also will likely help demonstrate UIAs capabilities in attracting and facilitating investment, and test the turnaround strategys longevity as a scaleable platform for an increased volume of investors and investor options among Ugandas targeted priority sectors.
Questions for Discussion

1) How did UIAs operation and activities change to reflect the agencys new strategic focus? 2) How did UIAs strategy support its mandate to attract both domestic and foreign direct investments? What factors influence each, and both? 3) Which of UIAs components and programs initiated under the strategy are sustainable for the long term, given proper funding? Which, if any, should not be continued, and why? 4) What tools and management techniques did UIA employ to achieve both its revised focus and efficiencies in resources? 5) What is the interplay between strategic objectives and resources, and how did UIAs implementation accommodate budgetary and donor considerations?
59
6) How did outreach within Ugandas private sector facilitate investment and support UIAs turnaround strategy? 7) What are appropriate measures for gauging the success of UIAs turnaround strategy? Going forward, how should UIA monitor and evaluate the agencys performance to reinforce its credibility with the government and donors?
60
Endnotes
1
The Best IPA Awards are given by Strategic Direct Investor Magazine (a EuroMoney publication) on an annual basis. The agency won the same award (Best IPA in Africa and Middle East) in 1995 as well. Uganda was the one of the first African countries to liberalize its telecommunications sector; there are now several private telecommunications companies in operation. As a trading bloc of 23 member countries, COMESA imports more than $170 billion worth of goods each year and exports merchandise worth well in excess of $13 billion. Investors in the COMESA countries enjoy preferential treatment for their inter-COMESA exports through reduced tariffs, following the establishment of the Free Trade Area (FTA) in October 2000. Uganda ranked 150 out of about 175 nations in the UNDP rankings. UIAs mandate covers both domestic and foreign direct investment. The majority of the investments from the UK, Kenya, India and Canada are reportedly by the Asians expelled from Uganda by the Idi Amin regime. General support staff included drivers, messengers and tea service personnel. This plan called for the preparation and execution of four two-year action plans, which each contained specific objectives, activities and budgets designed to achieve the Horizon 2000 targets. The finance and accounting division, which was previously under the Corporate Services division, was now the responsibility of the new Finance Division. This decision was made in order to strengthen the financial management of UIA and its accountability to funding organizations. These included the Government of Ugandas Medium Term Competitiveness Strategy for the Private Sector (2000 - 2005), as well as the Big Push Strategy, recommended in UNCTADs Investment Policy Review of Uganda (2000). The objective of the World Bank Private Sector Competitiveness Project, which ran from 19962002, was to make the Ugandan private sector more competitive so that it could expand sales to both domestic and international markets. UIAs involvement primarily occurred in 2000-2001. The donor agencies that contributed to UIA budgets have included USAID, World Bank Group, EU, DFID, Government of Austria, UNIDO, Irish Aid, European Union and Government of Italy. UIA had previously established Regional Investment Centers on a pilot basis in two of Ugandas fastest growing commercial centers, Lira and Mbarara. Each was operated by one UIA staff member. The center in Lira was financed by the EU, and the center in Mbarara by the Austrian Government. Through donor support, the agency set up an account management software and system, a web site with explicit information and links to useful sites, and training for Dr. Kigozi and her staff on investment promotion. UIA produced and distributed 10,000 investment brochures, produced 7,000 investors guides and 3,800 sector profiles, and created and placed ten advertisements in selected business publications. In March 2001, the UIA facilitated the formation of a local entrepreneurs consultative committee, bringing together 20 leading local investors from various key sectors of the economy. The committees stated mandate is to advise the UIA Board of Directors on the critical factors affecting Ugandas competitiveness as an investment location.
4 5 6
7 8
10
11
12
13
14
15
16
61
Endnotes (Continued)
17
The UIA Women Entrepreneurs Consultative Committee on Investment, comprised of 50 women entrepreneurs (medium to large scale), was launched in June 2001 to advise the UIA Board of Directors and management on the critical needs of women-owned investing companies in Uganda. By early 2004, UIA reported 24% of investments as joint ventures. The country has recently benefited from Ugandas diaspora; Ugandan nationals have returned to invest in projects, for example, as Dr. Kigozi reports, three hospitals and a juice factory. The Uganda Desk compiled business profiles for agro-processing, fish processing, education, electronics, information technology, floriculture and dairy products, among others.
18
19
62
Exhibit 1 Economic Indicators of Uganda
POVERTY and SOCIAL Uganda 2003 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions) Average annual growth, 1997-03 Population (%) Labor force (%) Most recent estimate (latest year available, 1997-03) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ billions) Gross domestic investment/GDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports Present value of debt/GDP Present value of debt/exports 1983-93 (average annual growth) GDP GDP per capita Exports of goods and services STRUCTURE of the ECONOMY 1983 (% of GDP) Agriculture Industry Manufacturing Services Private consumption General government consumption Imports of goods and services 57.6 9.4 5.7 33.0 87.4 10.2 13.6 1993 51.5 13.1 6.0 35.4 89.1 9.8 21.2 4.5 1.6 2.3 1983 .. 7.4 8.7 2.4 .. .. .. .. 22.2 .. .. 1993-03 6.7 3.0 15.2 1993 3.2 15.2 7.1 1.1 3.0 -12.3 1.6 81.9 72.5 41.0 545.2 2002 6.8 1.0 26.0 38 12 42 88 38 55 69 127 130 125 3.7 2.5 25.5 250 6.2
SubSaharan Africa 703 490 347
Lowincome 2,310 450 1,038
2.3 2.4
1.9 2.3
.. 36 46 103 .. 58 35 87 94 80
.. 30 58 82 44 75 39 92 99 85
2002 5.9 19.7 11.9 5.1 5.8 -13.9 0.2 48.3 22.0 19.6 158.3 2003 4.7 1.8 -3.3
2003 6.3 20.7 12.3 6.6 7.1 -13.5 0.2 62.5 11.0 30.8 269.2 2003-07 5.7 2.0 4.8
2002 31.0 21.6 10.0 47.5 79.4 15.5 26.5
2003 32.4 21.2 9.3 46.4 78.2 15.2 26.4
63
Exhibit 1 (Continued) Economic Indicators of Uganda
1983-93 (average annual growth) Agriculture Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services PRICES and GOVERNMENT FINANCE 1983 Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit TRADE 1983 (US$ millions) Total exports (fob) Coffee Cotton Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100) BALANCE of PAYMENTS 1983 (US$ millions) Exports of goods and services Imports of goods and services Resource balance Net income Net current transfers Current account balance 379 493 -113 -113 66 -161 .. .. .. .. .. .. .. .. .. .. .. 3.5 7.4 7.0 5.4 4.1 3.5 7.0 2.6
1993-03 3.9 11.0 11.6 7.6 6.2 6.5 7.5 10.7
2002 3.9 7.9 5.3 8.0 6.2 4.6 9.9 18.2
2003 2.3 7.2 4.0 6.3 3.0 6.4 10.0 -2.3
1993
2002
2003
.. ..
30.1 30.1
-2.0 -3.9
5.7 10.1
.. .. ..
7.3 -1.1 -11.3
12.2 -1.6 -12.3
12.1 -1.1 -11.3
1993 157 99 5 .. 531 .. 58 .. 42 95 44
2002 457 85 18 .. 1,031 .. 123 .. 35 83 43
2003 498 106 17 .. 1,151 .. 134 .. 41 90 45
1993 238 693 -455 -49 108 -396
2002 697 1,554 -857 -119 161 -815
2003 778 1,663 -885 -131 163 -852
64
UIA
Exhibit 1 (Continued) Economic Indicators of Uganda
Financing items (net) Changes in net reserves Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$) EXTERNAL DEBT and RESOURCE FLOWS
88 73 .. ..
425 -29 112 1,201.8
989 -174 840 1,755.0
985 -133 931 1,882.8
1983 (US$ millions) Total debt outstanding and disbursed IBRD IDA Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 1,006 0 123 86 0 2 76 69 -9 0 0 121 33 1 32 1 31
1993 2,638 11 1,267 175 10 13 276.8 230 -11 4 0 224 135 12 123 11 112
2002 2,832 0 2,077 160 0 14 407.3 259 3 182 0 540 256 7 249 7 242
2003 3,938 0 2,046 88 0 20 441.3 300 10 220 0 315 353 12 341 7 334
Note: 2003 data are preliminary estimates. This exhibit is excerpted from Uganda At a Glance, the World Bank Group. Complete At a Glance data and tables are available by country at www.worldbank.org under Data and Statistics.
UIA
65
Exhibit 2 UIAs Investment Record
Between 1991 and 2002, Uganda registered US$3,016 million of investment (local and foreign) generating 97,877 jobs. The average realization rate (the ratio of actual to planned) of the planned investments and employment over the years is about 53%. (The table lacks complete information for recent years.)
Table 2-4 UIAs Investment Record, 1991 2002
Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total Source: UIA.
Planned 16.03 374.43 581.62 399.57 642.07 680.80 533.93 361.15 625.30 296.70 273.69 916.67 5,701.96
Investment (US$ millions) Actual Realization Rate 16.43 331.55 741.83 273.61 451.25 350.68 453.61 271.42 96.88 7.20 18.49 3.96 3,016.91 102.5% 88.5% 127.5% 68.5% 70.3% 51.5% 85.0% 75.2% 15.5% 2.4% 6.8% 0.4% 53.0%
Planned 514 11,480 23,967 30,783 24,380 25,368 17,271 8,715 6,371 9,158 16,650 15,070 189,727
Employment (no. of jobs) Actual Realization Rate 293 13,953 26,957 13,201 11,197 9,666 8,440 4,661 2,933 5,565 N/A 1,011 97,877 57.0% 121.5% 112.5% 42.9% 45.9% 38.1% 48.9% 53.5% 46.0% 60.8% N/A 6.7% 52.0%
66
UIA
Exhibit 3 Mission and Governance
UIA states as its mission: To make a significant and measurable contribution to Ugandas development process by promoting private sector investment. UIA operates under the Ministry of Finance, Planning and Economic Development (MoFPED)20 and reports to the Minister of State for Investment of MoFPED. The agency is governed by a Board of Directors, which is comprised of 12 representatives from the private sector, the public sector and academia. UIA works closely with its parent Ministry on a number of strategic programs and consults the Ministry when it faces problems it cannot resolve for investors. UIAs close working relationship with MoFPED helps support the agencys efforts to influence national investment policies.
UIA Board Members (in 2003) 1. Dr. William Kalema Managing Director, Simba Blankets; Chairman of the Board 2. Mrs. Pearl Mutibwa Katumba Commissioner for Immigration, Ministry of Internal Affairs 3. Mr. Keith Muhakanizi Director, Economic Affairs, Ministry of Finance, Planning and Economic Development 4. Ms. Robina Sabano Commissioner for Technology, Ministry of Tourism, Trade and Industry 5. Dr. Maggie Kigozi Executive Director, Uganda Investment Authority 6. Mr. Moses Sebunya Businessman 7. Dr. John Muhumuza Lecturer, Makerere University Business School 8. Dr. George Nasinyama Lecturer, Faculty of Veterinary Medicine, Makerere University 9. Mr. Paul Jembrace Erongot Retired Banker and Businessman 10. Ms. Josephine Okot General Manager, Commodity Export International Ltd. 11. Mr. Hilary Obonyo Executive Director, Uganda Manufacturers Association 12. Dr. Henry Opondo Director of Research, Bank of Uganda
20
Although UIA was established as an agency under the Ministry of Planning and Economic Development (MPED), as a result of the restructuring in the government, the MPED was merged with the Ministry of Finance to form the Ministry of Finance, Planning and Economic Development (MoFPED).
UIA
67
Exhibit 4 Organizational Structure, Staffing and Training
Organization
UIA is headed by the Executive Director, who was supported by a Deputy Executive Director until the restructuring in 1999. There are five division heads that report to the Executive Director. UIA is organized into five divisions. While the Investment Promotion and Investment Facilitation and Aftercare divisions carry out core activities, the other three fulfill support functions. (See Table 2-5: Staffing of UIA, in this Exhibit.) 1. Investment Promotion Division Staffed by a director, three assistant directors and five investment executives, this division carries out research and collects information on target sectors, and provides information to potential investors. In addition to undertaking investment missions abroad and organizing visits of potential investors to Uganda, the investment promotion division is responsible for public and media relations for UIA and implementing image-building initiatives. Investment Facilitation and Aftercare Division With a division head, two assistant directors and three investment executives, this division is charged with a number of tasks: Licensing of Investment Projects. When UIA was first established, it was tasked to approve applications for the incentives offered in the 1991 Investment Code, which offered tax holidays of three to six years. Following the codes revision in 1995, import duty rates were set at zero, and UIA no longer had to authorize incentives. However, the Investment Promotion division still issues licenses to investors. Project Facilitation. Facilitation includes helping investors secure secondary licenses, assisting them to obtain work permits for their expatriate staff, and, when necessary, encouraging regulatory authorities and utilities to expeditiously serve investors. The UIA also assists investors in finding markets, and in forming joint ventures with prospective foreign investors, through its joint venture matchmaking database. During 2000, UIA directly facilitated over 60 investors, a 20% increase over 1999 in which 50 investors were facilitated. The division is also tasked to follow up and monitor the progress of the investment projects while they are operational, and it undertakes an annual survey of investors to identify problems and bottlenecks. Meetings, Workshops and Seminars. UIA takes part in various meetings and workshops, many of which are geared toward investor facilitation. Some of these include: sector meetings aimed at identifying the problems faced by investors in their sectors; meetings with financial institutions to explore potential financing sources for local investors; training workshops for top civil servants on the importance of streamlining government machinery; capacity building for foreign service officers to equip them with the necessary skills and information to market Ugandas investment opportunities, Ugandan export products and Ugandas tourism potential; and regional investor workshops in Eastern, Western and Northern Uganda.
2.
a.
b.
c.
68
UIA
d. Monitoring: UIAs monitoring activities are designed to help the institution keep track of the difficulties that investors face on the ground, and also to help ascertain the number of investments actually licensed by the institution. During any given year, UIA officials visit around 200 different projects. Alongside the regular monitoring activities, UIA commissioned a local firm to carry out a comprehensive survey of all projects licensed by the UIA since inception. 3. Strategic Planning and Development Division Staffed with a director, two assistant directors and two investment executives, this division is organized in two units: Information Communication Technologies Unit. This unit is in charge of purchasing, installing and maintaining the information systems at UIA, as well as training UIA staff on these systems. Currently, an investor tracking system (Goldmine), a business operating conditions package, and an accounting and administration software (Pastel Version 5) are in use by UIA. The unit is also in charge of ensuring that the UIA website is up-to-date and functions well. The Government of Uganda made UIA the executing agency of the governments information and communications technologies (ICT) Strategic Intervention Program. UIA, through its ICT unit, has been promoting and facil(Continued on next page)
Figure 2-1 Organizational Chart of UIA
a.
UIA
69
itating individuals and firms that are interested in investing and developing this sector. The focus is on areas of business processing outsourcing, particularly in ICT enabled services for export, i.e. online bookkeeping and call center services and business support. b. Strategic Planning Unit. The unit undertakes research and information gathering activities, and participates in studies to promote an environment that is attractive and conducive to investment. It is responsible for institutional development of UIA, implementation of change and strategic improvements within UIA, coordination with donors, review and reporting of corporate performance, and oversight of programs that are outside the mainstream for UIA. It coordinates closely with Government and private sector agencies on improving the investment environment and thus is the focal point for UIAs policy advocacy efforts. It also coordinates with donors and lending agencies. This unit attends bilateral agreement negotiations, employment and labor productivity protocols, monitors laws affecting investment (including the review of all bills in the pipeline) with the objective of strengthening the legal framework for investment. The division is actively engaged in regional and international cooperation initiatives, such as the East Africa Cooperation (EAC) Customs Union, and Free Trade Area for the COMESA region. Other responsibilities of the division include special programs outside of the mainstream UIA activities, such as oversight of an investment promotion unit in Italy, and provision of secretariat services to the Cabinet Implementation Committee, which was set up as a policy organ to monitor the implementation of the governments Medium Term Competitiveness Strategy. Land Development Division The Uganda Investment Policy Review of 1998 identified lack of serviced land as one deterrent to FDI. As a result, the government requested UIA to establish this department, staffed by a director, two assistant directors and one administrative assistant, to be in charge of kick-starting the industrial land development process in Uganda. UIA owns several pieces of land in different parts of the country, and has prioritized the development of industrial and business parks in two locations: Namanve and Luzira. UIA commissions topographical surveys, physical planning studies, and environmental impact studies for the lands identified in preparation for marketing these lands to private developers and investors for development. The agency actively seeks funding sources for development of the priority projects, such as Kampala Industrial and Business Park (KIBP) in Namanve, and Kampala Inland Port (KIP), and negotiates with potential partners on the management and development of such projects. UIA considers serviced land provision one of the key elements in its investment facilitation. The division is also in charge of planning and managing the Multi-facility Economic Zone Program and encourages maximum involvement of the private sector in the development of the Economic Zone. UIA is a member of the Land Use Planning Policy Committee and works with the committee on land policies. The division receives applications from the districts on available land and enters this information on a database; it is
4.
70
UIA
working on developing a supportive Geographical Information System (GIS) to improve the user-friendliness of the database. 5. Finance and Administration Division This division provides support services to technical divisions such as procurement and logistics. Operating under a division head, the divisions staff includes: 3 staff members in accounting, 3 administrative assistants, 1 receptionist, 1 security staff, 1 driver, 1 messenger, and 1 tea service person. Activities carried out by this division include financial management, budgeting, budgetary control and reporting; accounting; human resource management and development, procurement, and logistics.
Staff Turnover
When first established, UIA was able to attract recruits from the private sector, because at that time it offered very competitive staff compensation packages. However, due to budgetary constraints, UIA recently has had difficulty keeping up with the private sector marketplace in recruiting staff with extensive business experience. In order to motivate the technical staff and help them gain experience in different aspects of investment promotion, the management rotates officers among the technical divisions. The Agency also carries out staff performance assessments through annual appraisals. (Continued on next page)
Table 2-5 Staffing of UIA 1998 2003
Staff Category 1998 Executive Director Deputy Executive Director Directors (Heads of Divisions) Assistant Directors/Investment Officers Investment Executives/Junior Professionals Assistants Drivers General Support Total 1 1 7 10 11 11 3 5 49 1999 1 0 5 9 9 3 0 4 31
Staff Numbers 2000 2001 1 0 5 9 8 5 0 5 33 1 0 5 9 8 6 0 5 34
2002 1 0 5 6 6 6 0 5 29
2003 1 0 5 5 9 8 1 5 34
UIA
71
UIA has not experienced a significant turnover rate with the exception of two incidents; most technical staff members have been with the agency for the last nine years. One such incident was the restructuring in 1999, which led to 18 positions being terminated, mostly in administration and support. The second incident was the news of a possible merger of UIA with UEPB and UTB in early 2002. The possibility of a merger created anxiety among technical staff members of UIA, and six of them resigned from their positions to work for other government agencies or donor-funded projects.
Training
UIA believes in the need to train its staff and takes advantage of training opportunities offered by donor agencies: r All UIA staff received computer training at SCI Progress Institute before the launch of a new Management Information System. The training covered Windows 2000, MS Office 2000 and FrontPage. The Assistant Director of Management Information Systems attended a course in back office support involving UNIX Server, SQL and Internet Information Server administration. All UIA staff received training in the use of CCOMFAR, a special UNIDO developed software for preparing business plans and evaluating industrial projects. The training was conducted by an international expert from the UNIDO Investment Promotion Office in Milan, Italy. The Executive Director attended a course in strategic investment promotion hosted and sponsored by the Industrial Development Agency Ireland. Three staff members in the Accounts section of Finance and Administration division received partial sponsorship towards their professional development. A staff member of the Investment Promotion Division attended training in India on Industrial Project Preparation and Appraisal with a special focus on the building materials sector. Various staff members attended Investor Targeting workshops sponsored by donor agencies and international organizations.
72
UIA
Exhibit 5 Budget and Sources of Funding
Financial support to UIA has traditionally been from two sources: the Government of Uganda and the donor community. Although it was dependent on funding from donor agencies21 in its early years, the agency became fully funded by the Government of Uganda as of 2002, indicating the commitment of the government to investment promotion. (See Table 2-6: Sources of Funding for UIA, 1996-2003 and Table 2-7: Government Funds Available to UIA.) Although the Government has increased its share of contribution to the UIA budget over time, the funding from the government has only been enough to cover the operational costs, with almost nothing left over for investment promotion program activities and investment facilitation/aftercare services. For example, while the ratio of the operational and administrative expenses to the total budget was 65% in 2000, that for the investment promotion and facilitation expenses was 15%. In 2001 the ratio of operational and administrative expenses to total budget was 63%. However, UIA was able to spend more funds on investment promotion and facilitation activities, and the ratio of these to the total budget was 34%. The change from 2000 to 2001 was mainly due to the fact that UIA spent less on land and industrial development in 2001, and thus was able to spend more on investment promotion and facilitation. Inadequate funding and lack of fund sustainability have been chronic problems for UIA. This has tended to restrict the implementation of critical investment promotion activities. UIAs limited budget has pushed it over the years to skew its focus and work plan in order to get outside funding. (Continued on next page)
21
The donor agencies that contributed to UIA budgets have included USAID, World Bank (through Private Sector Competitiveness Project), EU, DFID, Government of Austria, UNIDO, Irish Aid, European Union and Government of Italy.
Table 2-6 Sources of Funding for UIA, 1996 2003
Year 1996 1997 1998 1999 2000 2001 2002 2003
Amount of Contribution (in '000 US$ ) GOU Donor Total 587 1,002 2,123 1,603 1,303 1,394 1,925 2,197 765 968 1,045 307 124 654 1,352 1,970 3,168 1,910 1,427 2,048 1,925 2,197
% of Funding GOU 43 51 67 84 91 68 100 100 Donor 57 49 33 16 9 32 0 0
Note: GOU abbreviates Government of Uganda.
UIA
73
Donor Support of UIA:

r r
Table 2-7 Government Funds Available to UIA
Budget Items (2003-04) GOU Operating GOU Program GOU KIBP GOU ICT (Strategic Exports) TOTAL
Amount '000 US$ 631.9 726.1 338.6 560.1
% of Total 28 32 15 25
2,256.6
100
Note: GOU abbreviates Government of Uganda; KIBP abbreviates Kampala Industrial and Business Park. The amounts in this table were converted from Ugandan shillings (UGS) to US dollars (US$) using the 2003 annual exchange rate: 1 US$ = 1,964 UGS.
r r r r r r r r r r r r
ProInvest Business development, investment promotion Private Sector Support r UNCCI SIDA r UMA Denmark r Linkages UNCTAD r Fish USAID, UNIDO r BDS EU, UNDP Website MIGA Investor Tracking System (Goldmine) MIGA Insurance MIGA, ATI Economic Policy Review 1996 UNCTAD; Update 2005 UNCTAD Guide to Investment 2001 UNCTAD, ICC; Update 2004 UNIDO Big Push Strategy 2000 UNCTAD Investment Promotion & Facilitation World Bank 2000/01 Investment Promotion UNIDO Industrial Park UNIDO 2000 Capacity Building UNIDO, UNCTAD, MIGA Administrative Barriers to Investment FIAS 1996; Update 2003 ICT Software Study - UNCTAD
Note: Organizations abbreviated above are as follows: UNCCI Uganda National Chamber of Commerce and Industry; SIDA Swedish International Development Authority; UMA Uganda Manufacturers Association; UNCTAD United Nations Conference on Trade and Development; USAID United States Agency for International Development; UNIDO United Nations Industrial Development Organisation; BDS Business Development Services; EU European Union; UNDP United Nations Development Programme; MIGA Multilateral Investment Guarantee Agency; ATI African Trade Insurance Agency; FIAS Foreign Investment Advisory Service; ICT Information Communications Technology.
74
UIA
Exhibit 6 Performance Measurement
UIA establishes annual investment promotion targets at the beginning of each financial year and measures its performance against these targets. The criteria UIA uses to assess its performance are the number of licensed projects, and amounts of planned investment and employment. Although UIA has targets for the number of projects and the total investment amounts, the agency does not set target figures for planned employment. (See Table 2-8: UIA Performance, 2002-03.) In order to quantify the actual amounts of investment and employment, UIA conducts an annual investor survey. The survey also seeks to get investor feedback about the quality of UIAs investment promotion services. Although UIA has targets at the agency level as mentioned above, it has not yet implemented the recommendations to have measurable targets at the division level. Thus, UIAs corporate strategy document presents actions, activities and outputs for each division, but it falls short of introducing specific targets.
Table 2-8 UIA Performance, 2002-03
Performance Indicators
Target for Actual for Fiscal Year July 20022003 March 2003
Number of Projects Planned Investment (US$ Millions) Planned Employment
100
121
233.92
801.8
N/A
10,934
UIA
75
76
Shaping the IPA to promote increased market access
THE CASE STUDY OF FIPA TUNISIA

In 1995 Tunisia signed an Association Agreement with the EU, the first of its kind among Mediterranean states. The agreement allowed for free trade in industrial goods to be phased in by 2010. Under previous trade agreements, Tunisian-based exporters had free access to the EU for most products. The government moved very quickly on its new trade liberalization to dismantle tariffs on imports, setting in motion a new competitive dynamic for Tunisian investors. This case study highlights the eight-year experience of Tunisias Foreign Investment Promotion Agency (FIPA) in developing a program to capitalize on the countrys expanded EU market access. This case study offers lessons in defining and enhancing competitiveness for foreign direct investment (FDI). In order to position Tunisia as an alternative to European locations, the agency finely differentiated the countrys opportunity for exporters in certain product sectors. This was accomplished through targeting of Tunisias most likely investors, as well as extensive benchmarking of operating costs across several countries and products. Moreover, FIPAs focus on customer service for its new market of priority investors essentially defined its development as an operation. The agency built an infrastructure to provide dedicated customer care, overseas support in European cities, and sector-specific information via the web in English, French and Italian. Ultimately, this case is about how to apply an understanding of the investors perspective to the organizations structure, strategy and activities. In the case of FIPA, this understanding helped transform Tunisias proximity and access to the EU into a clear competitive advantage for priority investors.
FIPA TUNISIA
77
78
FIPA TUNISIA
Introduction
In 1998, the German cable producing giant Leonische Drahtwerke AG announced the opening of operations near the Tunisian coastal city of Sousse. This US$8.5 million project investment was followed by another announcement from United Technologies Automotive, a subsidiary of US United Technologies Corp., that it would inaugurate a new US$8.5 million plant the same year. In 1999, Lear Corporation, also from the US, announced an additional investment of US$10 million into a Tunisian expansion, which was expected to generate some 600 new jobs. In May 2003, Tunira, a German electrical equipment manufacturer, announced the opening of a 16-hectare plant with a total investment of US$15 million and employment of 1,100 people. These projects, representative of a steady influx of investment into Tunisia after its national Foreign Investment Promotion Agency (FIPA) was established in 1995, exemplified Tunisias diversification away from its traditional reliance on energy investments to the attraction of FDI in targeted manufacturing sectors. Between 1995 and 2002, Tunisia realized 1,410 investment projects, creating a total of more than 90,000 jobs, and FIPA contributed to a cumulative investment amount over the period of $US2.4 billion. The development of FIPA, and Tunisias success targeting and attracting FDI among non-energy manufacturers, were inextricably linked to a defining event that would shape Tunisias FDI strategy for years to come. In July 1995, Tunisia had signed an Association Agreement (AA) with the EU, the first of its kind among Mediterranean states, which allowed for free trade in industrial goods to be phased in by 2010. Tunisia-based, industrial exporters had already enjoyed free access to the EU for most products under previous trade agreements. Beginning in 1996, Tunisia expediently began dismantling tariffs on imports as well, well ahead of the AAs 1998 application in force. By January 2001, agricultural products had been included under the agreement, and Tunisia had negotiated preferential access for key indigenous foodstuffs, along with concessions on some EU food imports.1 This trade liberalization policy helped to crystallize Tunisias competitive approach as an FDI location, and to define FIPAs role in serving a base of investors attracted to Tunisias geographic proximity and access to the EU. Over the course of several years, the agency would 1) finely differentiate Tunisias operating environment as an alternative to mostly European competitive locations for exporters in certain product sectors, and 2) develop an infrastructure and customer orientation for servicing a broad segment of investors, including major blue chip and hightechnology manufacturers. Through these two main areas of activity competitiveness and investor service FIPA would create a dynamic operation equipped to maximize the EU opportunity set in place by the Association Agreement. This case study highlights the seminal Tunisian experience attracting FDI through FIPAs eight-year development of a program to capitalize on the countrys expanded EU market access. The FIPA program would grow to encompass a foundation based in client service, and a range of activities to systematically track and articulate Tunisias competitive position. These activities would include targeting to identify and reach Tunisias most likely investors, as well as extensive benchmarking of operating factors, primarily costs, in Tunisia and competitive locations across several product sectors. The experience of FIPA Tunisia described here is intended to help early-stage and evolving IPAs, and mature IPAs expanding their product, sector or geographic
FIPA TUNISIA
79
markets, consider effective approaches in positioning an investment location to compete for FDI. In the case of Tunisia, FIPAs market focus essentially defined its development as an operation, concurrent with the governments adoption of new trade policy initiated in 1995. The agencys attention to the opportunity presented by increased EU market access may be instructive for IPA senior managers in 1) setting priorities within a new or restructured organization, 2) addressing a developed and demanding competitive environment, and 3) building an infrastructure and activities in support of FDI potential derived through trade liberalization, association agreements and regional economic integration policy.
Tunisia / EU Association Agreement Highlights The EUTunisia Association Agreement, signed in 1995 for implementation over 12 years, set a framework for wide-reaching financial and economic cooperation. Highlights include: r Financial and technical support from the EU for Tunisias development, especially to offset private sector impacts of trade liberalization; r Further liberalization of trade, to eventually include free trade on most industrial imports and exports, including textiles; r No quotas or tariffs on many equipment goods; r Review of agriculture regime in 2000, which resulted in concessions on key products; r Harmonization of trade regulatory framework, and standards governing accounting, statistics and customs practices; r Promotion of integration within the Maghreb region; r Environmental protection; r Social and cultural cooperation; and, r Respect for democratic principles and human rights. Source: Finance and Development, Vol. 33, No. 3, Sept. 1996.
Background
Economic Context
Located in North Africa close to the large European market, Tunisia is considered politically and economically stable in a region of political uncertainty and minimal growth. Tunisia was ranked as a low-risk country by many organizations assessing country risk 2 between 1997 and 2001, reflecting GDP growth of 5.3% and export growth of 6.6% per year. In 2001 the World Economic Forum ranked Tunisia first among African countries in overall competitiveness. (See Exhibit 1: Economic Indicators of Tunisia.) The economic policy priorities of the government, encapsulated in its mise niveau program of economic modernization through industrial restructuring, were focused on increasing GDP through investment and productivity gains, creating jobs to reduce unemployment, and increasing exports. Initiated with an emphasis on manufacturing in 1996, the program was subsequently expanded to include services and agriculture. The Tunisian government also focused on privatizing state assets, reforming the financial system, promoting regional growth and improving infrastructure. A significant feature of the FIPAs location product is the association and free trade agreement Tunisia signed with the EU in July 1995, which initiated a broad program of financial and economic cooperation. Under the trade agreement, the first of its kind among countries in the region, Tunisian-based companies could access the EU market, entirely free of duties and levies, with no quotas on industrial products and preferential access on agricultural products. Although the agreement came into force in March 1998, the government began applying its scheme early in 1996, which helped Tunisia to spur growth, modernize industry and create jobs. By 2002, about 40% of Tunisias imports from the EU were duty-free, and the majority of others were allowed significant reductions in tariff, for example, to either 44 or 66 percent of the basic rate.3 The current challenges for Tunisia include increasing its investment rate (as a percentage of GDP), increasing the quantity and quality of skills formation in the country, reducing the fiscal deficit, further liberalizing trade in services, addressing the high unemployment rate, continuing the banking sector reform and diversifying the economic activities base. In addition, Tunisia will completely liberalize its textile industry by 2005 under the GATT, which will end its preferential access to the EU market. This industry, which currently accounts for about 42% of Tunisias exports, will subsequently face fierce competition from its Asian rivals.

Tunisia has been seeking FDI since the 1970s. The first investments were in apparel assembly, although the focus has evolved over the years, and electrical parts and
80
FIPA TUNISIA
electronic components became significant sectors beginning in the early 1990s. Tunisia secured these investments primarily from French and German companies as they began to globalize their operations. The trend for FDI inflows to Tunisia was downward for the overall period of 1980-88, rising from US$214.4 million in 1980 to US$421.2 million in 1982, and then declining regularly until 1987. Beginning in 1988, FDI started to rise again, reaching US$117.3 million in 1990. These fluctuations were related primarily to the decline of FDI in the petroleum sector. Traditionally, most FDI has gone into the energy sector in Tunisia (developing oil and gas fields and constructing pipelines). Despite many incentives, non-energy FDI had not taken hold prior to 1998. Since then, several manufacturing sectors have been the predominant focus of FDI. The purchase of four privatized cement factories accounts for the spikes in the FDI inflows to Tunisia in 1998 and 2000. With a total of US$174.5 million, FDI in manufacturing in 2001 was unable to match the all-time record set in 2000, which reached US$502.2 million. After the construction materials sector, textiles and apparel attracted the most FDI, followed by leather and shoes, automotive components, electronics, pharmaceuticals, food processing and computer software. (See Table 3-1: FDI Inflows to Tunisia, 1995-2002.) Tunisia attracted US$821 million of FDI in 2002, toward achieving the governments goal of US$5,050 million of FDI in the period 2002-2006, as stated in the 10th National Economic Developmental Plan. 4 In 2002, the privatization of the United International Bank and the concession of a second global system for mobile (GSM) communications license contributed to the annual results. As of December 2002, Tunisia was host to a total of about 2,500 foreign companies employing 223,000 and accounting for one third of all Tunisian exports. Between 1995 and 2002, Tunisia increased its annual volume of secured investments by about 40%, from about 150 companies per year in the mid-1990s to 200 in 2002. During this period, Tunisia realized 1,410 investment projects, creating 91,886 jobs and contributing a cumulative investment amount of more than US$2.4 billion. (See Table 3-2: Foreign Investments in Tunisia, 1995-2002.)
Investment Promotion History

Tunisias investment promotion experience was initiated when the parliament approved the first national law on investments, the Industrial Investment Code of 1972, which established the Investment Promotion Agency (API). This law focused
Table 3-1 FDI Inflows to Tunisia, 1995 2002, in US$ millions
1995 Manufacturing FDI Total FDI without energy Total FDI with Energy* FDI as a % of GDP 25.6 63.1 322.6 1.8
1996 50.9 108.5 279.9 1.4
1997 77.5 119.0 364.3 1.9
1998 459.5 490.1 667.3 3.4
1999 166.8 204.3 368.6 1.8
2000 502.2 543.4 779.3 4.0
2001 174.5 259.1 486.5 2.4
2002 179.6 520.4 821.0 3.8
Source: Tunisian Central Bank. * Excluding portfolio investments and privatization Note: Approximate annual exchange rates used to convert FDI amounts in this table from Tunisian dinars (TND) to US dollars (US$) are as follows: 1 US$ = .95 TND (1995); 1 US$ = .97 TND (1996); 1 US$ = 1.11 TND (1997); 1 US$ = 1.14 TND (1998); 1 US$ = 1.19 TND (1999); 1 US$ = 1.37 TND (2000); 1 US$ = 1.44 TND (2001); 1 US$ = 1.42 TND (2002).
FIPA TUNISIA
81
Table 3-2 Foreign Investments in Tunisia, 1995 2002
Year
Number Investment Number of in '000 US$ of Companies (Current Employees Prices) 143 153 142 210 158 195 209 200 1,410 183,583 190,425 123,260 490,107 204,346 543,379 259,051 437,002 2,431,153 9,914 9,891 11,900 12,430 11,151 13,112 12,452 11,036 91,886
1995 1996 1997 1998 1999 2000 2001 2002 Total
Note: Approximate annual exchange rates used to convert FDI amounts in this table from Tunisian dinars (TND) to US dollars (US$) are as follows: 1 US$ = .95 TND (1995); 1 US$ = .97 TND (1996); 1 US$ = 1.11 TND (1997); 1 US$ = 1.14 TND (1998); 1 US$ = 1.19 TND (1999); 1 US$ = 1.37 TND (2000); 1 US$ = 1.44 TND (2001); 1 US$ = 1.42 TND (2002).
on industrial investment and offered certain incentives to promote industrial development. Staffed with few employees, API functioned as the national investment promotion agency under the Ministry of Economy.5 This Industrial Investment Code was revised in 1987, relaxing the restrictions on foreign investment and introducing two separate incentive regimes: 1) for enterprises totally engaged in exporting, and 2) for companies primarily oriented to the domestic market. The revisions in 1987 also created a new agency called the Industrial Promotion Agency (also known as API), which merged the Investment Promotion Agency, the National Center for Industrial Studies, and the Industrial Property Agency (AFI). Although the intention was to bring together the complementary industrial policy organizations under one structure, the integration was not effectively achieved, leaving a juxtaposition of three essentially separate agencies. Later on, AFIs autonomy was restored when it was removed from API. In January 1994, the Investment Incentives Code, governing both national and foreign investments, was signed into law. Under this legislation, Tunisia offers total tax exemption on profits for the first ten years of an investment on income from exports, agricultural projects and regional development projects. A 50% tax reduction applies on export income, starting in the 11th year and lasting indefinitely, and on regional development projects for the second ten years of an investment. The import of capital goods, raw materials and semi-finished products for companies that export all of their production is completely free of duties, along with exception from tariffs on the import of equipment and raw materials from the EU, in compliance with the terms of the trade agreement. FIPA was established in 1995 as set forth in the Investment Incentives Code, as a government agency under the Ministry of Investments, later renamed the Ministry of Economic Development. In the fall of 2002, the Ministry of Economic Development was merged with the Ministry of International Coordination to form the Ministry of Development and International Coordination, under which FIPA currently operates. (See Exhibit 2: Mandate and Governance Structure.) FIPA would benefit from a close working relationship with its parent ministry and the leadership of its minister, as well as the support of the Prime Minister, who had previously served as the minister responsible for attracting FDI into Tunisia.6
FIPA Tunisia
The 1995 Association Agreement with the EU, in conjunction with the mise niveau industrial reforms and investment incentives, set in place a policy framework for the development of FIPAs program. The agencys focus is reflected in two interrelated areas of activity: competitiveness factors and customer service. FIPA gradually evolved its program to 1) define the Tunisia location as a product, 2) differentiate Tunisia from its competition, 3) structure the organization and its activities to enhance Tunisias competitive position, and 4) focus the operation on serving an expanded potential client base of European and EU market-focused investors. Over the course of eight years, FIPAs understanding of its FDI market and specific investor requirements by sector would increasingly drive the agencys core functions and activities.
The Tunisian Advantage

With the major impact of the EU Association Agreement in force by 1998, along with the reforms and investor incentives already in place, Tunisia had created the basis for defining the countrys advantages as a destination for FDI. FIPA committed its
82
FIPA TUNISIA
efforts to positioning Tunisias significantly improved competitive advantage, particularly for investors interested in manufacturing for export to Europe. The agency first identified Tunisias most likely investors by sector, and then worked to demonstrate compelling, sector-specific cases for investment, primarily in terms of costs. However, implementation of a sector-based targeting approach, which would be substantiated through product-specific benchmarking studies, required a restructuring of the FIPA operation. The agency was reorganized in 2000 to reflect its sector priorities, under the direction of Mr. Abdessalem Mansour, FIPAs current General Manager. Appointed to lead FIPA in 1999, Mr. Mansour had more than 15 years experience in banking and international finance, but also brought public sector expertise acquired during several years at the Ministry of Agriculture. FIPAs new organizational framework helped transition the agency from general promotion of Tunisia to sector-based targeting and outreach. (See Exhibit 3: Organizational Structure, Staffing and Training.) Between 1995 and 2000, the agency was organized in geographical departments based on major countries and regions of investors origin.7 Strategic plans were also formulated by geographic territory. While this approach technically covered potential investors in key markets around the globe, its breadth prohibited more than general promotion of Tunisias investment climate; the geographical departments would often overlap in promoting the same sectors, and were neither structured nor equipped to address investors specific information requirements, which often related to the Tunisian opportunity for manufacturing particular types of products. According to Mr. Mansour, the earlier attempts based on a geographical focus did not yield satisfactory results, the real success came after we, as an organization, took a sectorbased approach to promotion. The reorganization has eliminated the lack of focus on the part of investment promotion officers and helped the agency to achieve better results. After the reorganization FIPAs investment promotion division managers noted clear improvements, including enhanced support to investors, focus on FDI surveys and competitiveness factors, and increased direct contacts with potential investors. Targeting. In 1998, implementing the technical advice of FIAS (Foreign Investment Advisory Service), FIPA commissioned studies to identify the sectors most likely to invest in Tunisia, based on the countrys comparative and competitive advantages. This increased understanding of Tunisias competitiveness enabled FIPA to target specific industries and companies, and to design an investment promotion plan for each targeted sector. 8 As funds became available to implement the targeted investment promotion plan, the agencys departments started to promote Tunisia in their respective regions/countries. (See Exhibit 4: Budget.) FIPA subsequently shifted to a sector-based departmental structure, as described above. FIPA also learned over the years to market to investors based on company size. Early on the agency realized that the largest multinational companies often possessed substantial knowledge on potential investment locations. As the Director of Advanced Technology Sectors Promotion Division, Mr. Noureddin Zekri, remembers, FIPAs value addition to these companies decision-making was rather small. We saw an increase in our success rate when we decided to put our energy into large and medium-sized businesses as main sources of investment. Currently, FIPAs strategy focuses on responding to the information needs of a tier of large and medium-sized foreign investors, particularly from Europe where increasing costs are pushing companies to relocate. However, FIPA does not exclude the largest multinational companies in its priority sectors as targets in agency promotional efforts. After a pool of individual company prospects is identified through FIPAs targeting process,9 appropriate contacts are made by either the overseas office
Tunisias Target Sectors High Value-Added: r Automotive Components r Electrical/Electro-Mechanical Products r Information and Communications Technologies (ICT) r Plastic Components Services: r Call Centers Traditional: r Leather r Agriculture r Textiles r Garments
FIPA TUNISIA
83
personnel or by headquarters staff members, who carry out several missions per year. Investors who decide to make an exploratory trip to Tunisia, no matter how this interest was generated, are handled by staff members assigned to either of two sectoral divisions within the investment promotion function. If the FIPA staff detects any level of interest on behalf of the investor, an evaluation is conducted to first determine if the project is desirable, and then if it is likely to materialize. FIPA evaluates a projects desirability based on expected employment and exports, and whether it will yield a transfer of technology. Product Benchmarking. Once its target priority sectors were established, FIPA determined that further differentiation of Tunisia was necessary to present a convincing argument to potential investors. The market FIPA had segmented was rich with opportunity, including manufacturers located in Europe considering more cost-effective alternatives for serving EU country markets. However, by positioning Tunisias EU access, FIPA had also placed Tunisia solidly within one of the most sophisticated and robust competitive arenas for global FDI. Ms. Fatma El GhanmiKrichen, director of the Studies and International Cooperation division of FIPA, recalls FIPAs efforts to differentiate itself from other IPAs. After the decision to set the agency apart from its competition, she notes, there has been a notable change in the nature of the studies FIPA commissions. FIPA progressed from commissioning studies that validated sector and individual product priorities to studies that examined the cost structures of targeted products in a number of countries that competed with Tunisia for FDI. The process of benchmarking comparative costs and conditions helped to clarify the Tunisian advantage from the perspective of individual investors in particular sectors. Ms. Ghanmi-Krichen adds: It is through this in-depth research that we are able to refine our product and differentiate from our competition. In conjunction with the investment promotion program financed by the EUs technical assistance funds, FIPA commissioned benchmarking studies for eleven target products during 2002, including automotive components in Spain and France, underwear in Italy and Portugal, plastic components in France, and electrical appliances and electronics in the UK. Eventually, the second phase of the benchmarking would incorporate 30 more products under the EU-funded program.10
FIPAs Benchmarking Program: March 2004 Update
FIPA recently released results from its comprehensive benchmarking analysis conducted in conjunction with ECORYS (The Netherlands) and Business Mobility International (Belgium). The study covered products in six business sectors: automotive, electric and electronic components, packaging, food industry, textiles and information technology services. The benchmarking methodology, which is commonly used by corporations in assessing sites for investment, enabled a comparison of production costs and non-financial factors costs for 30 types of investment projects in 11 countries. In addition, projections of simulated yields (pro-forma operating models) were developed in each of the country scenarios. The benchmarked countries include: Tunisia, Morocco, Hungary, Poland, the Czech Republic, Turkey, Romania, France, Spain, Italy and Germany. Announcing the studys results, FIPA concluded that Tunisia had demonstrated the best global profitability and very competitive operating costs for the subject products among the 11 country environments for FDI.
The Client Service Infrastructure

In addition to differentiating and articulating Tunisias unique competitive position, FIPA committed its efforts to creating a customer-focused operation. Over a period of several years, the agency developed a service infrastructure that enabled the organization to reach and accommodate a demanding segment of investors, and to enhance Tunisias competitiveness in the process. FIPAs building process is characterized by several key activities that helped to 1) instill a culture of customer service within the FIPA operation, and leverage the agencys external relationships to further client service, 2) expand FIPAs physical presence and capability in key investor markets, 3) embrace a standard of quality in service that could be documented for investors with the recognized ISO 9001 accreditation of quality assurance, and 4) promote Tunisia from the customers perspective, including the provision of both general information and in-depth profiles by sector and product via the Internet.
84
FIPA TUNISIA
Customer Focus. The concept underlying the customer service strategy was to provide dedicated customer care by assigning single points of contact within the agency. FIPA set up a system linking each client with one investment promotion staff member throughout the stages of the investors relationship with FIPA. Likewise, FIPA charged a single division11 to interact with government agencies in resolving investor problems. FIPAs investment promotion officers are responsible for initiating contact (or responding to inquiries), and following up with individual investors until the investment projects are implemented. If at any point the investor encounters a problem, he contacts his assigned investment promotion officer, who refers the problem to the Follow-up and Assistance Division, the agencys designated front line in working with government agencies. Mr. Noureddin Zekri, the director of FIPAs Advanced Technology Sectors Promotion division, explains that basing the customer service strategy on single points of contact helps to foster strong working relationships, adding: We believe this approach provides clear lines of communication between the investors and the agency, as well as between the agency and other governmental bodies, eliminating the possibility of multiple conflicting messages being given by different staff members. FIPA also created formal channels for addressing the problems of installed investors. The agency brings together investors with public agencies at annual meetings that explore and document specific investors issues. The minutes of these annual meetings are forwarded to the attention of the Minister of Development and International Cooperation, who in turn sends them to the Prime Ministers Office. If the issues require an action to revise policies, they are presented in interministerial meetings for discussion and resolution. In addition, a record from the database of problems12 maintained by FIPAs Follow-up and Assistance division is also passed on to the Ministers attention, which then follows the same process toward resolution of the recorded problems. This process has delivered positive results to date, including recent presidential decisions to simplify port procedures, and to reduce international telecommunication rates charged by the National Telecommunications Agency. FIPAs strong customer focus significantly impacted both the nature of the activities of the promotion function, and the thrust of the promotional message. By understanding the strategies of target companies, industry trends, and the factors investors consider when evaluating locations, the agency realized efficiencies in its promotional efforts. Radwen Tekaya, the investment promotion officer in charge of Information and Communication Technologies, reported: By placing emphasis on the customer, the agency has learned a lot over the years in terms of how to communicate with investors. In fact, FIPA refined its initial general messages on Tunisia as a location to focus on real competitiveness issues, including information on specific investment opportunities in Tunisia, potential Tunisian partner companies, and the costs of doing business in Tunisia, in addition to general information on the Tunisian economy.13 Overseas Offices. In an effort to directly access prospective investors in their home markets, FIPA opened overseas offices in several European cities, and one in the US. According to FIPAs General Manager, Mr. Mansour, the overseas offices are the best way to reach potential investors, as they are able to make direct contact with potential investors in a way the headquarters office simply cannot. FIPAs foreign offices also served to channel relevant information detailing intricacies of the business climates in the European countries where FIPA operates, providing a greater context on EU markets, and perhaps, the expectations of prospective investors. When asked what he would do if he had more resources available, Mr. Mansour says, I would strengthen our offices abroad. As initiators of contact with investors, FIPAs overseas offices14 play both an
FIPA's Foreign Offices r r r r r r Paris London Cologne Milan Brussels Chicago
FIPA TUNISIA
85
investigative and information-collection role. They each send an activity report to FIPA headquarters every three months, plus an annual report. Once a year, all FIPA foreign representatives meet with the headquarters staff in Tunisia at a summer retreat. Realizing the need to improve the communication between foreign offices and FIPA headquarters, FIPA implemented a program sponsored by the EU to install an intranet system that allows foreign offices to exchange information and data with the headquarters via the Internet. ISO 9001. ISO 9001 certification, FIPAs major undertaking to demonstrate its commitment to customer service, would also differentiate the agency from its competitors among IPAs. FIPA realized that aiming for an internationally-recognized standard of quality would help increase the agencys credibility and trust among investors, particularly among European manufacturers familiar with a range of quality standards applied to their own processes and products. Under a program initiated by the President of Tunisia and furthered by the Prime Minister, FIPA accepted the challenge as one of the two pilot government agencies to seek ISO 9001 certification. All FIPA divisions were responsible for following instructions to meet the ISO 9001 requirements. The Director of the Communications and Printing division, Ms. Jouda Ben Ayed remembers: We started to use standard forms to collect feedback from investors on the events organized and promotional materials assembled. Ms. Fatma El Ghanmi-Krichen, the Director of the Studies and International Cooperation division reports: Our division now prepares annual activity plans which are submitted to and signed by the General Manager. We also hold meeting notes and follow standard templates for preparing Terms of References, and evaluating the completed studies by other divisions of FIPA. Web Site. In using Internet technology to ease the agencys transition from general to sector-based promotion, FIPA was able to both present a professional global image for the agency, and tailor its promotional information to specific sectors among targeted investors interested in the EU market. The result of the agencys web efforts, www.investintunisia.com, features its content in English, French and Italian, and offers several tiers of specific information about doing business in Tunisia, including details on incentives, operating costs, existing investors and profiles of seven prominent sectors. These profiles, outlining industry-related factors in the food, automotive, leather, electronic/electric, computer and textiles sectors, reflect the agencys depth in understanding the range of costs and conditions important to investors in specific industries for certain products. For instance, an investor engaged in the manufacture of electrical equipment for the automotive industry learns from the web site that Tunisian salary costs in this area are 7-9 times cheaper than in European countries; likewise, for the production of mechanical plastic connectors, an investor quickly discerns that per unit costs in Tunisia rank lowest among six countries, after France, Spain, Turkey, the Czech Republic and Poland. FIPAs attention to designing a web presence that mirrored its customer orientation was also a factor in building the agencys competitiveness; in 1998, the web site was ranked 6th among the web sites of about 90 investment promotion agencies around the globe by Corporate Location magazine. The director of the Communications and Printing division, Ms. Jouda Ben Ayed reported FIPAs web plans: We believe that it is better to have less promotion on paper and more on the Internet, and thus we are making plans to transform our web site to an interactive one. She also believes that it would be valuable to get partners in the private sector involved in the content of the information presented on the Internet, as they would be more in tune with market realities.
The General Managers Recipe for Success
According to FIPAs General Manager, Mr. Abdessalem Mansour, six key factors have contributed to FIPAs success: 1. Staff professionalism 2. FIPAs foreign offices 3. Restructuring the organization - from country to industry targeting 4. Strong support at the Ministerial level 5. Creation of a team spirit at FIPA 6. Language skills within the agency
86
FIPA TUNISIA
Next Steps
The FIPA organization essentially was redefined by the opportunity presented in Tunisias integration into an expanded European marketplace. In its strategic direction and project orientation, the agency demonstrated an ability to focus on factors that matter in an internationally competitive FDI environment. In particular, the agencys drive to identify and promote Tunisias competitiveness from the investors perspective was illustrated in: 1) effective targeting of investors, 2) organizational restructuring to accommodate priority sectors, 3) benchmarking of comparative costs, and 4) an agency-wide orientation to customer service. The benchmarking studies were essential in isolating critical differentiators and defining industries for potential growth in FDI; for instance, FIPA has outlined Tunisias competitive advantages for suppliers of wire harnesses and electrical equipment to large European-based car manufacturers. Given Tunisias emphasis on trade with the EU and an attractive structure for exporters, an increasingly relevant measure of FIPAs efforts is the countrys growth in exports, particularly those bound for Europe. As of December 2002, foreign investors in Tunisia accounted for about one third of all Tunisian exports. Furthermore, according to FIPA, exports to the EU which are 80% industrial products grew from 51% in 1976 to 80% in 2001. While the countrys commitment to economic reform and trade liberalization provided the initial impetus for this growth, FIPA succeeded in shaping an organization equipped to handle the shifting dynamics resulting from Tunisias accelerated integration into both the EU trading community and an expanded regional trade market. In fact, Tunisia is leading the formation, through a series of bilateral and regional treaties, of the Maghreb contingent of a Europe-Mediterranean free trade zone. This huge economic area is expected to incorporate a populace of 800 million by 2010.15 FIPA will need to further demonstrate its ability to adapt to changing market conditions as Tunisia advances and refines its policy initiatives. In very general terms, Tunisias most apparent benefits for exporters may become less compelling as the country increases its involvement in a global, more competitive trade and investment environment,16 requiring a repositioning of Tunisias advantages for FDI in a broader context. This is especially true for the textiles sector, where the agency faces the challenge of retaining installed textile and clothing manufacturers after the expected elimination of the Multi-Fibre Agreement quotas, and hence Tunisias preferential EU-market access. FIPA has worked to support and promote diversification of Tunisias prominent investment sectors, but this activity likely will need to intensify in the future, to reflect the changing trade scenario for textiles, as well as further liberalization of the Tunisian economy. It has been suggested that growth in FDI would benefit from more open competition in the services sector, including telecommunications and transport, by both encouraging private investment in services and by helping to lower costs for investors operating in Tunisia.17 In any case, and as Tunisias policy on services evolves, FIPA will need to expand its efforts to proactively identify and position new opportunities for FDI, within its existing strong framework based on the fundamentals of competitiveness and customer service. FIPA can next apply its benchmarking and targeting experience to forward-thinking activity in less developed, but promising niche industries for Tunisia, perhaps in services and higher value-added production.

1) What was the relationship between Tunisias reforms and trade policy, and FIPAs development of Tunisia as a competitive product for investors?
FIPA TUNISIA
87
2) How did increased market access to the EU specifically impact FIPAs functions and activity? 3) What was the significance of FIPAs change in strategy and structure from a geographic approach to one targeting specific sectors? Discuss the pros and cons of each type of approach as it applies to promotion, account management and service. 4) How did FIPA go about differentiating Tunisia as a location? What were the most effective tools in positioning the Tunisian advantage, and why? 5) How did FIPA work to build the agencys competitiveness among other IPAs? What tools were important in these efforts? 6) What are effective measures of FIPAs success in redefining its product and organization within the field of competitors for EU market-based and global FDI? 7) Does Tunisia offer lessons for countries struggling to diversify beyond energyrelated or other traditional industries? How relevant is FIPAs experience as a model for boosting investment among countries in North Africa and the Middle East? 8) How should FIPAs strategy and activities change as Tunisias economy becomes more integrated into the EU and the region from a trade and investment perspective?
88
FIPA TUNISIA
Endnotes
1
As summarized in The EUs relations with Tunisia, http://Europa.eu.int, updated March 2003, and The Association Agreement Between Tunisia and the European Union, Finance & Development, Sept. 1996. Standard and Poors rated Tunisia BBB, Moodys ranked Tunisia Baa3, IBCA ranked Tunisia BBB in 2001. Standard and Poors maintained its BBB long-term rating for Tunisia in 2002. Economic Review of EU Mediterranean Partners, European Commission, Directorate-General for Economic and Financial Affairs, March 2004. Each year FIPA prepares an annual plan to contribute toward achievement of the governments goal in attracting FDI. This annual plan clearly states the target sectors, markets and activities to be undertaken, as well as expected results. The Ministry of Economy was given different names during various periods of Tunisias history, such as the Ministry of Economy, Industry and Commerce, and the Ministry of Economy; in addition, the Ministry was split into two Ministries, one for industry and one for trade, a few times over the years. Aside from its close working relationship with the Ministry of Development and International Coordination, FIPA tries to maintain close relationships with the governments other promotional agencies, including API (Industrial Promotion Agency), CEPEX (Export Promotion Center), ONTT (Tourism Promotion Office), and APIA (Agricultural Promotion Agency). FIPA meets with these promotional bodies three times a year to discuss promotional events of mutual interest in order to coordinate event preparation. Other partner institutions include the Chamber of Industry and Commerce, UTICA, joint chambers of commerce and industry with other countries in Tunisia and overseas chambers of commerce and federations. For example, FIPA included a department for the US, a department for the EU, and a department for Arab countries. FIPA had access to about US$500,000 of World Bank funds in 1997, of which it used about US$250,000 to undertake studies to enable investor-targeting strategy and to identify target companies. The targeting process is either undertaken by contracted consulting companies, or less frequently, by FIPAs investment promotion officers. FIPA is currently receiving about 4 million euros in aid from the European Union for a total of 4 years (2001-2004). Of this aid, 2 million is slated for technical assistance, providing sectoral experts in the areas of targeting of foreign enterprises, training, communication and organizational support; this money also funds a long-term advisor. About 500,000 euros are allocated for equipment purchases, and about 1.2 million euros for undertaking studies. The remaining 300,000 euros are put aside for audits and other expenses. Follow-up and Assistance Division. As soon as a problem is brought to its attention, the Follow-up and Assistance division of FIPA enters the problem in a database and contacts the relevant government divisions, other Tunisian bodies and regional authorities to help solve the problem. The actions taken by the relevant body (or bodies) and FIPA are also entered into the database to enable the division to follow-up with the investors until their problems are resolved. The agency announces the results of benchmarking studies on its web site to highlight Tunisias competitiveness in its target sectors. For example, for the automotive components industry the information presented compares Tunisia to competitor countries for production costs of mechanical plastic connectors, cable harnesses, and caps for seats. In addition to the headquarters office in Tunis, FIPA has a total of six foreign offices. There are plans to add two more offices abroad to increase the presence in Europe (Spain) and in the US.
10
11 12
13
14
FIPA TUNISIA
89
Endnotes (Continued)
15 16
As described by FIPA: www.investintunisia.com. This concept is discussed in economic terms in Growth, Private Investment, and the Cost of Doing Business in Tunisia: A comparative perspective; P.A. Casero and A. Varoudakis, January 2004. Growth, Private Investment, and the Cost of Doing Business in Tunisia: A comparative perspective; P.A. Casero and A. Varoudakis, January 2004.
17
90
FIPA TUNISIA
Exhibit 1 Economic Indicators of Tunisia
POVERTY and SOCIAL Tunisia 2003 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions) Average annual growth, 1997-03 Population (%) Labor force (%) Most recent estimate (latest year available, 1997-03) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1983 GDP (US$ billions) Gross domestic investment/GDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports Present value of debt/GDP Present value of debt/exports 1983-93 (average annual growth) GDP GDP per capita Exports of goods and services 3.8 1.5 7.3 8.4 33.5 34.4 25.1 26.6 -6.9 2.5 48.6 19.2 .. .. 1993-03 4.8 3.4 5.2 1993 14.6 29.2 40.4 21.7 20.0 -8.8 2.9 59.5 20.8 .. .. 2002 1.7 0.6 -2.1 .. 64 73 21 4 80 27 112 114 109 1.2 2.3 9.9 2,240 22.2
M. East & North Africa 312 2,210 689
LowermiddleIncome 2,655 1,480 3,934
1.9 2.9
0.9 1.2
.. 58 69 44 .. 88 31 96 100 92
.. 50 69 32 11 81 10 112 113 111
2002 21.0 25.2 44.8 21.0 21.6 -3.5 2.4 61.5 13.5 59.8 105.5 2003 5.6 4.4 0.3
2003 25.0 25.1 43.1 21.0 21.8 -2.9 2.3 61.8 13.0 .. .. 2003-07 5.2 4.0 4.4
FIPA TUNISIA
91
Exhibit 1 (Continued) Economic Indicators of Tunisia
STRUCTURE of the ECONOMY 1983 (% of GDP) Agriculture Industry Manufacturing Services Private consumption General government consumption Imports of goods and services 12.4 32.5 14.2 55.1 57.9 16.9 42.7 1983-93 (average annual growth) Agriculture Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services PRICES and GOVERNMENT FINANCE 1983 Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit TRADE 1983 (US$ millions) Total exports (fob) Fuel Agriculture Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100) 1,860 832 82 908 3,103 434 347 795 .. .. .. 1993 3,746 454 436 2,387 6,149 417 455 1,515 82 95 86 2002 6,857 641 489 5,057 9,504 798 846 2,086 154 109 141 2003 8,027 801 627 5,836 10,896 694 1,130 2,224 165 117 141 .. 12.7 1993 4.1 4.7 2002 2.7 2.3 2003 2.7 2.2 5.3 3.7 1.7 3.4 2.8 3.0 2.6 4.1 1993 14.7 28.0 17.1 57.3 62.0 16.3 48.0 1993-03 2.8 4.7 5.3 5.3 4.8 4.3 4.3 4.8 2002 10.3 29.3 18.6 60.4 62.6 16.5 49.1 2002 -11.0 3.2 1.9 3.6 3.9 4.3 -6.1 -2.4 2003 12.1 28.1 17.8 59.8 62.4 16.6 47.2 2003 21.5 0.9 0.7 5.0 4.8 4.6 7.3 0.1
30.3 5.7 -4.2
27.6 4.8 -2.8
24.8 4.7 -3.1
23.8 4.3 -3.2
92
FIPA TUNISIA
Exhibit 1 (Continued) Economic Indicators of Tunisia
BALANCE of PAYMENTS 1983 (US$ millions) Exports of goods and services Imports of goods and services Resource balance Net income Net current transfers Current account balance Financing items (net) Changes in net reserves Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$) EXTERNAL DEBT and RESOURCE FLOWS 1983 (US$ millions) Total debt outstanding and disbursed IBRD IDA Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 4,058 434 67 638 65 1 28 238 263 184 0 144 90 32 57 34 24 1993 8,693 1,595 54 1,352 263 2 103 375 -98 562 20 189 248 149 99 117 -18 2002 12,923 1,464 35 1,445 233 2 114 242 867 795 6 112 117 156 -39 79 -118 2003 15,473 1,779 33 1,594 286 2 56 233 771 575 .. 0 251 207 44 82 -38 2,869 3,567 -698 -267 387 -578 563 15 574 0.7 1993 5,769 6,678 -909 -971 597 -1,283 1,322 -39 864 1.0 2002 9,539 10,431 -893 -984 1,130 -746 895 -149 2,301 1.4 2003 10,911 11,898 -987 -1,046 1,295 -738 1,146 -408 2,957 1.3
Note: 2003 data are preliminary estimates. This exhibit is excerpted from Tunisia At a Glance, the World Bank Group. Complete At a Glance data and tables are available by country at www.worldbank.org under Data and Statistics.
FIPA TUNISIA
93
FIPA is a governmental agency that defines its mandate as promoting foreign investment in Tunisia and providing support to foreign investors. The agency is governed by a Board of Directors that consists of representatives from: a. b. c. d. e. f. g. h. i. j. the Prime Ministers Office, the Ministry of Development and International Cooperation, the Ministry of Finance, the Ministry of Industry and Energy, the Ministry of Agriculture and Environment, the Ministry of Tourism, the Ministry of Commerce, Trade and Artisan, the General Manager of FIPA UTICA (Tunisian Union of Industry, Trade and Artisans), and two individuals chosen by a presidential decree on the basis of their competency in finance and investment.
The Board, which is dominated by public sector representatives, meets on a quarterly basis to review the agencys annual plan and progress to date. FIPAs General Manager acts as the President of the Board and reports to the Minister of Development and International Cooperation.
94
FIPA TUNISIA
Exhibit 3 Organizational Structure, Staffing and Training
FIPA is headed by a General Manager who reports to the Ministry of International Development and Cooperation and is assisted by the General Secretary. The organizational structure of FIPA follows a matrix that comprises technical and administrative divisions. Three administrative divisions: 1) Audit and Control, 2) Coordination with Foreign Offices, and 3) Document Registration; and five technical divisions: 1) Communications and Publications, 2) General Promotion, 3) Consumer Products Industries Promotion, 4) Advanced Technology Industries Promotion, and 5) Studies and International Cooperation report directly to the General Manager. Follow-up and Assistance, Informatics, Documentation and Archives, and Administration and Finance divisions report directly to the General Secretary.
Technical Divisions
1. Communications and Publications This division, with one director and four staff, is in charge of producing promotional materials, distributing them to the foreign offices of FIPA, chambers of commerce, foreign embassies in Tunisia and embassies of Tunisia abroad, and preparing materials that will be presented on the agencys web site (www.investintunisia.com). While two staff members focus on conceptualizing and producing the materials, the other three focus on producing videos, CDs, and photos. General Promotion This division has one director and two staff members. One staff member focuses on general promotion activities and the other on the organization of and FIPAs involvement in economic activities. The division prepares a general program of promotion activities each year that lists the economic festivities in Tunisia and abroad, such as delegations and visits by foreigners to Tunisia, seminars, reunions, conferences, congresses, missions to foreign countries by FIPA, Tunisian-Foreign Partnership events, and signing of accords that FIPA will join. Investment Promotion divisions There are two investment promotion divisions. They operate in identical ways, but cover different sectors. Consumer Products Industries Promotion: This division covers four sectors: agribusiness, textiles, leather and other consumer products. There is one person working in each sector. Advanced Technology Industries Promotion: This unit covers three sectors: electrical and electronics, mechanical and plastics, and high value-added services. One individual covers each sector. Studies and International Cooperation This division has one director and two staff members, who focus on conducting surveys and promoting international cooperation. As part of its (Continued on next page)
2.
3.
a.
b.
4.
FIPA TUNISIA
95
responsibilities, this division was placed in charge of managing the technical assistance program funded by the EU. Another responsibility of this division is to prepare summary sheets on the recent changes introduced by the government to the business environment, and to keep this information up-todate. 5. Follow up and Assistance Staffed with a director and two additional people, this relatively new division fulfills a problem solving and monitoring role. It was initially in charge of collecting data on investors problems, but now the division is analyzing and interpreting this data. Every two months the division presents a report to the parent Ministry on project life cycles. The division interacts with foreign investors that experience problems at the pre-investment, investment and post-investment stages.
Upon receipt of a problem report, the division enters the problem in its database and contacts the relevant government divisions, other Tunisian bodies and regional authorities to help solve the problem. The actions taken by the relevant body or bodies and FIPA are also entered into the database to enable the division to follow-up with the investors until their problems are resolved. The Follow up and Assistance division also maintains a database of land and buildings available for foreign investors, which includes electronically available photos of the plots and buildings available. The sources for the land database are AFI (Industrial Property Agency), Office of Regional Development, Chamber of Industry and Commerce, and private owners.
Administrative Divisions
1. Administration and Finance This division is headed by a director and has two units: a) human resources unit staffed by 2 people; and b) accounting and finance staffed by 3 people. Documentation and Archives This division keeps a library of studies and documents such as those generated by the technical divisions, studies by outside consultants, and copies of promotional materials. Computer and Information Systems This division is in charge of FIPAs information systems. Currently, there is a promotional action database with contact information, an industrial buildings and land database (mentioned above), a partnership database used for matchmaking between foreign and local companies (prepared by FIPA), and a database of foreign firms established in Tunisia (which FIPA receives from API). All databases are shared with the Minister of Development and International Cooperation.
2.
3.
96
FIPA TUNISIA
4.
Audit and Control This one-person division is responsible for carrying out internal audits of FIPA. Coordination with Foreign Offices This is a one-person division that is in charge of ensuring coordination with foreign offices. It channels the communication between the foreign offices, the initiating end, and the technical divisions of FIPA, the receiving end, serving as the alternative point of contact for foreign offices when headquarter technical staff are not available due to travel or personal reasons. Document Registration This division has 4 staff and is in charge of registering the incoming and outgoing documents such as faxes, letters and other written documents.
Figure 3-1 Organizational Chart of FIPA Tunisia
5.
6.
(Continued on next page)
FIPA TUNISIA
97
Foreign Offices
In addition to the headquarters office in Tunis, FIPA has a total of six foreign offices located in its target markets: Paris (France), London (UK), Cologne (Germany), Milan (Italy), Brussels (Belgium), and Chicago (US). There are plans to add two more offices abroad to increase the presence in Europe (Spain) and the United States. The foreign offices are connected to FIPA via the Intranet, a plan initiated in 1998 but not implemented until 2000, when EU funds for this purpose were made available.
Staffing
FIPA has a total staff of 66 individuals employed in the headquarters office in Tunis, and 12 individuals in its six offices abroad. As with all other government employees, FIPA staff members are evaluated every three months by their supervisors. The evaluation is based on work discipline, punctuality, efficiency, use of self-initiative, and communication skills, and is conducted with counterparts and the director. This evaluation sets the base for the amount of bonus each staff member will receive. As part of the agencys efforts to become ISO 9001 certified, FIPA installed a number of databases recently to address the concern that the agency had no methodological performance measurement of its own efforts.
Training
FIPA provides foreign language training to its staff on an individual basis. Also provided is computer training to improve the staffs ability to use Microsoft Office software. With funding available under the EU program, investment promotion staff members were sent on overseas training missions to Ireland where they were exposed to the investment promotion practices of the Irish Development Agency (IDA). FIPA is a member of ANIMA (Euro Mediterranean Network of Investment Promotion), which brings together the IPAs of European and Mediterranean countries so that the agencies can exchange ideas and information. Under the ANIMA network, two staff members received training on investment promotion.
98
FIPA TUNISIA
Exhibit 4 Budget
FIPA receives its entire budget from government funds through the Ministry of Finance. Although the budget has seen incremental increases steadily over the years, it has remained somewhat limited. While the actual expenses in 2002 totaled about US$2.44 million, the 2003 and 2004 budgets of FIPA were US$2.59 million and US$3.3 million, respectively. A quick review of selected budget line items for the last three years indicates that the combined salaries of FIPA staff in Tunisia and abroad represented about 45% of the total budget. While the operational budget figures averaged about 20% of the total, the promotional budget figures averaged around 30% of the total budget. In addition, the agency budgeted about 5% for new offices. As such, the agency appears to spend about 70% of its budget simply to exist, leaving about 30% available to spend on promotional activities.
Table 3-3 FIPAs Budget, in $US
Budget Line Item Operational Budget Tunisian Staff Staff Abroad Salaries Subtotal Office and Building-related Expenses Transportation Training Equipment for Foreign Offices Operational Subtotal Management Budget Total Promotional Budget Agency Activity Abroad Investment Promotion Assistance Equipment Transportation Promotional Budget Total FIPA New Buildings Promotional Budget + Buildings Total Fipa Total Budget
Actual Expenses 2002 628,764 439,604 $1,068,368 122,455 28,569 5,533 294,887 451,444 1,519,812
Budget 2003 741,196 485,076 $1,226,272 145,135 32,597 11,642 384,956 574,330 1,800,602
Budget 2004 803,285 $693,075 1,496,360 152,120 34,925 11,642 523,882 722,569 2,218,929
301,505 435,670 8,184 0 745,359 175,842 921,201 2,441,013
388,061 388,061 0 17,075 793,197 0 793,197 2,593,799
520,001 395,822 7,761 42,687 966,271 121,075 1,087,346 3,306,275
Note: Expense amounts in this table were converted from Tunisian dinars (TND) to US dollars (US$). The approximate annual exchange rates used are as follows: 1 US$ = 1.42 TND (2002); 1 US$ = 1.29 TND (2003). The 2004 budgeted expenses were converted at the 2003 exchange rate.
FIPA TUNISIA
99
10 0
FIPA TUNISIA
Creating a positive image among targeted foreign investors
THE
CASE STUDY OF
PROESA EL SALVADOR

In the early 1990s, the government of El Salvador decided to embark on an aggressive strategy aimed at improving the countrys climate for private investment. A series of policies helped to liberalize the economy, including privatization of the state-owned telecommunications and electricity distribution companies in 1998. In 2002, the countrys recently established investment promotion agency, PROESA, launched an image-building campaign to increase foreign direct investment (FDI) into El Salvador. The El Salvador Works campaign was credited with helping to change the image of El Salvador from a country plagued by war and disaster into a destination of choice for FDI. This case study describes how PROESA designed and implemented its imagebuilding campaign. It provides context for considering the pros and cons of image building as part of a broader investment promotion strategy. In particular, this case conveys that image building is a proposition that simply cannot be used in isolation. El Salvadors campaign was effective because numerous efforts put in place ahead of the campaign created a supportive environment for the launch of the new message geared to investors. Several years of reforms had created an improved investment climate, an established track record, and a fairly good product to offer. PROESA had a program in place for identifying and servicing investors. In addition, this case study illustrates the necessity of defined measures of success at the onset of the campaign. It suggests quantitative milestones to monitor and evaluate a campaigns performance as it progresses, although its direct impact on new investments will be difficult to isolate. As in the case of PROESA, this sort of scrutiny is essential to getting the most out of the campaign, and in planning future image-building activities.
PROESA
101
102
PROESA
Introduction
In 2002, investment promotion officials in El Salvador were elated. One of the top five tuna processors in Europe, the Spanish Grupo Calvo, had announced that it would locate its largest fish-canning tuna plant in the Americas in El Salvador. This translated into a total investment of US$40 million and 650 new jobs. Las Palmas International Trade B.V. from the Netherlands had announced their plans to codevelop an ornamental plants project in the country, which was expected to bring a total investment of US$200,000 and 20 new jobs. In addition, an Israeli-Salvadoran joint venture (constituted between Rizk Alla and 18 Salvadoran families), had announced that it intended to invest about US$22 million and employ 650 people. These three investments were part of a growing success story for the countrys foreign investment promotion efforts. Between 2000 and 2002 El Salvadors investment promotion agency, PROESA (short for Promoting Investment in El Salvador), had interacted with 1,318 companies1 and played a significant role in attracting 83 foreign investment projects, accounting for over US$230 million in new investments and generating employment for 25,000 people. It seemed hard to believe that in the recent past El Salvador had been embroiled in a 12-year civil war, which ended with the peace accords of 1992. El Salvador also recently had experienced two powerful earthquakes that had affected about 20 percent of the population, and caused an estimated US$1.6 billion in damage to physical assets. Soon after the peace accords, the government decided to embark on an aggressive strategy aimed at improving the investment climate and promoting private investment. The macroeconomic environment was stabilized and several privatizations contributed to put El Salvador on the map of foreign investors. Foreign direct investment culminated at over US$1 billion in 1998 when the telecommunications and electricity distribution companies were sold to foreign companies. However, this strategy was not enough to ensure a sustainable flow of FDI into El Salvador. PROESA, the agency responsible for investment promotion, was created in 2000. An aggressive and creative image-building campaign was credited with helping to change the image of El Salvador from a country plagued by war and disaster into an FDI destination of choice. PROESA, with the help of a major public relations firm, designed the catchy and appealing El Salvador Works campaign, portraying El Salvador as an up-and-coming and business-friendly site for investment in Central America. This case study describes how PROESA designed and implemented an imagebuilding campaign to increase FDI into El Salvador. It provides useful lessons for new and early-stage investment promotion agencies (IPAs) formulating their marketing strategies, particularly for those working in post-conflict and transitional environments. The example of PROESA can be used to help IPA managers both consider the pros and cons of image building as an element of an investment promotion strategy, and better understand the foundation and components of an effective campaign. Ultimately, this case offers a scenario for evaluating when and how it makes sense to use image building within a broader investment promotion strategy. It also suggests checkpoints for monitoring and assessing actual campaign results. A key objective of this case study is to help convey that image building is a proposition that simply cannot be used in isolation. El Salvadors campaign was
PROESA
103
effective because several efforts were put in place ahead of the campaign to create a supportive environment for the launch of the new message geared to investors. It was firmly imbedded in a well-articulated program for identifying and servicing investors. Moreover, the reform program that had been taking place post war had created a friendlier investment climate for businesses. Thus, by the time imagebuilding activities were carried out, El Salvador had a fairly good product to sell, and PROESA had the networks and relationships within the government and business community that were needed to make sure investors would be well served.
Background
With a population of 6.5 million, El Salvador is the smallest country in Central America. It borders Guatemala, Honduras and the Pacific Ocean. Following the elections of 1989, the country had undertaken an ambitious reform effort. Advancements were made in liberalizing the economy, marked by the elimination of governmental subsidies, the establishment of a fixed exchange rate, the privatization of state-owned enterprises, pension reform and trade liberalization. During the 1990s, growth and stable prices replaced economic decline and inflation. The country also expanded investments in education and health, making a concerted effort to increase literacy rates and invest in improving the quality of its workforce. As a result of dollarization, El Salvadors interest rates in 2001 were among the lowest in Central America. These policy improvements resulted in El Salvadors gradual move up the ranking of most investment climate indicators used by the international community. Moreover, the country received a favorable investment grade credit rating awarded by Moody. 2 El Salvadors average inflation rate was also among the lowest throughout the 1990s, and its GDP growth was the second highest in Latin America. (See Exhibit 1: Economic Indicators of El Salvador.) Figure 4-1 portrays the level of legal barriers to economic activity in Central America by country. Beginning in 1999, El Salvadors score is the lowest in the group, reflecting the highest ranking among the five Central American countries.
Figure 4-1 Investment Climate Index for Central America, 1995 2003
In this figure, El Salvadors lower scores mean relatively higher rankings in terms of economic freedom and openness of the economy. Source: Heritage Foundation, Index of Economic Freedom.
10 4
PROESA
However, at PROESAs inception the economic picture of the country was not very positive. Despite an expanding and increasingly diversified economy, El Salvador remained overly reliant on assembly (maquila) and coffee exports for foreign exchange. And even though the lending rate dropped after dollarization took place in 2001, the demand for credit remained sluggish. Prices and currency stability achieved through the dollarization regime fostered some FDI and portfolio investment, but this made up only a small portion of the total capital inflows. FDI flows received a boost with the privatization program implemented in the post-civil war period. In 1998, the privatization of the state-owned telecommunications monopoly and four electric distributors brought investment of US$1.1 billion into El Salvador. After this initial privatization, the FDI figures fell to an average of US$212 million in 2000-2001, and the total FDI for 2002 was estimated at US$207.9 million. (See Table 4-1: FDI and GDP Performance of El Salvador.) The Central Reserve Bank of El Salvador estimated that foreign direct investment stock totaled some US$2.2 billion as of September 2001, a 15.79% increase over the US$1.9 billion reported in 2000.3 El Salvador has traditionally relied on free zones to generate FDI. The first free zone in El Salvador, established in 1974, was publicly administered. In 1986, the law was modified to allow private entities to participate, and in 1991 the first private free zone opened. By 2002, there were 16 zones operating under the Industrial and Commercial Free Zone Law, which offered incentives competitive with those elsewhere in the region, including duty relief, tax holiday, and streamlined administrative procedures to zone users. The majority of firms established under the free zone law were engaged in light manufacturing and assembly or maquila activity. For those investment projects not operating under the free zone regime, the Exports Reactivation Law offered 6% drawback of FOB value of products exported outside the Central American region.
PROESAs Strategy: Focus on Image Building

PROESA was established in July 2000. The agencys structure emphasized a strong partnership with the private sector. (See Exhibit 2: Mandate and Governance Structure, and Exhibit 3: Organizational Structure and Staffing.) Through its Board of Directors, PROESA received direct support and attention from the highest levels of the Salvadoran government. The Vice President of El Salvador, Carlos Quintanilla Schmidt, served also as the President of PROESA. As Mr. Quintanilla Schmidt observed: With a top-level government executive at the helm, the IPA has the clout to coordinate the large number of government agencies and entities that need to be involved in order to facilitate investment. Externally, it is important
Table 4-1 FDI and GDP Performance of El Salvador, 1997 2002
1997 FDI (US$ millions) GDP (US$ millions) FDI as a % of GDP 480.1 11,134.7 4.3
1998 1,103.8 12,008.4 9.2
1999 215.8 12,464.7 1.7
2000 173.4 13,134.1 1.3
2001 250.3 13,803.7 1.8
2002 207.9 14,283.9 1.5
Source: Central Reserve Bank of El Salvador.
PROESA
105
because it delivers a clear message to potential investors that the country is serious about attracting foreign investment. The Board of PROESA recognized from the beginning the importance of the perceptions of potential foreign investors, which seemed to be too negative, despite the improvements realized in the investment climate during the second half of the 1990s. It was strongly recommended at the onset that PROESA contract with professional organizations to carry out a perception survey, and then to design an image-building campaign based on the surveys results. PROESA engaged two USbased communications firms to undertake the perception survey and design the promotional campaign, and to supervise the campaigns strategic, advertising and public relations components. The consultants surveyed about 100 individuals representing investors, journalists, and analysts in the US, Taiwan, Japan and Korea, the main countries of origin for investment to El Salvador. The survey results indicated that despite the negative images in the media surrounding events in the country, foreigners general perception of Salvadorans was of hard-working people with a strong work ethic. The image-building campaign, El Salvador Works, was built around this core theme. Moreover, as El Salvador was the second most expensive location in the region in terms of labor costs, PROESA also used the campaign to differentiate the country from its competition by selling the countrys stable and dollarized economy, skilled and efficient labor availability, and the free trade agreements signed with Mexico, the Dominican Republic, Chile and Panama. The campaign logo was also used to name the agencys Internet site, www.elsalvadorworks.com, as well as to identify the countrys promotional materials (brochures and magazines), institutional publications and staff identification cards. The web site and materials provided potential investors with detailed and comparative information on the benefits of doing business in El Salvador. The image-building campaign was specifically tailored to reach potential US investors in targeted sectors. PROESA decided to focus on five sectors in which El Salvador had competitive and comparative advantages: agribusiness, call centers, electronics, assembly manufacturing and textiles/apparel. The target sectors were identified through a series of analyses and studies commissioned by the agency during 2000 and 2001. In addition, the studies provided in-depth knowledge of industry trends in each targeted sector, key factors for investment decisions, and identification of specific companies to target. Based on the results of these analyses, the agency contacted companies operating in the target sectors. The overall plan called for a multi-faceted marketing strategy that included advertising and other techniques, such as: targeted research, lead qualification, direct mailings, cold calling, trade shows, referrals, on-site presentations, and proactive follow-up. In July 2002, the El Salvador Works campaign was launched in the US. It was the first international promotional effort in the nations history. As the plan rolled out, ads appeared in issues of prominent trade magazines, including: Textile World, Apparel, Manufacturing Today, Latin Trade, Electronic Business, Food Processing, Food Manufacturing, Twin Plant News, Automotive Design & Production, Call Center and Bobbin. The agency planned to expand the campaign into other countries by 2003. Developing the message and launching a general advertising campaign were not enough. PROESA also devised a careful strategy for disseminating and refining the message for its various audiences. In order to target companies in each of the priority sectors, PROESA designed targeted advertising in the trade media for each specific sector. The agency invited editors from Business Facilities, Business News Americas, Food Processing and other publications to visit El Salvador to interview established foreign investors, the Vice President of the Republic, the Minister of Economy, the President of SIGET (the public regulator of the electric companies) and other public sector representatives. The articles written by these editors
10 6
PROESA
interested a number of investors who subsequently contacted PROESA to collect more specific information. PROESA also worked closely with Salvadoran embassies abroad to expand and disseminate the message of El Salvador Works. The agency teamed with key players in the business community to ensure that investors visiting El Salvador to evaluate conditions would be well served. Early into the campaign, PROESA realized that it did not have the capacity to answer all the inquiries their El Salvador Works campaign was generating. To address this need, PROESA started to develop a network of information resources with other entities and service providers, such as hotels and real estate brokers. PROESAs management understood that it would be critical to carefully monitor the results of its effort. The feedback would allow for corrections and refinements as needed. The agencys Communications and Public Relations Department was responsible for carrying out monitoring through frequent investor surveys and other less formal contacts. In its outreach efforts, the department approached not only the international investment community in El Salvador, but also local businesses that might benefit through joint ventures, and service, supply or subcontracting relationships, thereby strengthening support for the program with the domestic constituency.
Turning Opportunity into Investment

Once PROESA had identified agribusiness as a target sector, it carried out research on the leading international agribusiness companies. PROESA used the results from the earlier public relations campaign and investor survey to create the initial set of messages, and to generate interest in El Salvador as an investment destination among possible investor candidates. The agency developed specialized promotional materials for foreign investors, including an interactive compact disc, magazines and industry-specific brochures. In addition, the agency jointly published with the American Chamber of Commerce the Doing Business in El Salvador guide, which proved useful for this type of effort. The example of the Grupo Calvo investment illustrates how the various elements of the program came together to first identify a good prospect, and then through intensive activity, to help mobilize Calvos initial interest to the successful closure of the investment project. It also demonstrates how PROESA transformed progressively from a reactive to a proactive agency in its efforts to land business that is a good fit for El Salvador. Successful promotional campaigns require substantial IPA follow-up to provide additional information, bring parties together, help secure financing, and facilitate a positive outcome. It is often the case that the prospective investor may require further convincing by senior government officials that the location under consideration is the most competitive in the region for the given industry and corporate strategy. In the year preceding the announcement of the Grupo Calvo investment, PROESA supported the company as it worked through its location decision process and began establishing a presence in El Salvador. For PROESA, the Grupo Calvo investment was important to the agencys longer term strategy in several ways, incorporating three key tenets of the agencys mandate: abundant job creation, technology transfer and diversification of the industrial base. First, the investment marked the start of diversification of industrial fishing in the country, as well as the attraction of new industries related to fishing. This allowed for expanded positioning of El Salvador in industries that would contribute overall to diversification of FDI in the country. In addition, the Calvo project - which was to be accomplished in two phases of plant construction - would create both direct and indirect
PROESA
107
jobs and the transfer of technology. The plant was slated to first produce semifinished frozen tuna, moving to the full manufacture of canned tuna in the second phase. According to Calvo, the plant would produce 660,000 pounds of tuna per day, following technology, quality and environmental controls standards used in Europe.
Measuring Success
PROESA reported that 26 companies decided to establish operations in El Salvador in 2002. This is a notable achievement considering the depressed FDI market postSeptember 11th. These projects were expected to generate more than US$100 million in FDI, an estimated 7,000 direct jobs and nearly 12,000 indirect jobs. After less than three years of targeted efforts and activities, PROESA could claim an integral role in helping El Salvador secure a new wave of investments. The agency classified its direct contribution to investment generation in four ways: 1. 2. Active Promotion. Prospective investors were targeted and approached by PROESA. Concretization of Inquiry into Investment Project. Investors were considering El Salvador and approached PROESA, which in turn played an active role in convincing these prospects to invest. Facilitation. PROESA played a facilitating role with investors who had already made the investment decision. Aftercare. PROESA strengthened its aftercare program to help ensure installed investors continuing satisfaction with their decisions to locate in El Salvador.
3. 4.
Success in such an undertaking as the El Salvador Works image-building campaign can be evaluated at several levels. However, it is difficult to view the campaign as an isolated activity. The most straightforward way to gauge success is to measure the campaigns costs against the benefits. The campaign cost US$1.6 million over a 2-year period. PROESA stated that it had secured US$230 million worth of new investments in that same period, not including the proceeds from the existing privatization program. At face value this seems to be an overwhelmingly successful venture. From PROESAs perspective, the investment in the El Salvador Works campaign had paid off many times over. However, a more fundamental question is whether the campaign alone generated the investments. El Salvador had previously embarked on a long reform process and privatized major utilities (a strong signal to investors that the Government meant business). That is, El Salvador had effectively improved its investment climate prior to the image-building campaign. These efforts also contributed toward El Salvadors image and competitive position. In addition, packages of investor incentives were put in place. It is difficult to confine the campaigns impact within the two-year period. The El Salvador Works campaign was a strategic investment that helped to recharge the FDI potential of the country, fill the prospect pipeline, and start a mutually reinforcing process that would reap benefits well into the future. Among potential investors, the longer-term decision process to locate a new facility may not necessarily have fit within the timeframe of El Salvadors recent push. Those prospects that were influenced by the campaigns message and outreach may not have been ready to consider the proposition in the short term, but they still may decide to invest at a later date. Moreover, potential investors may be positively predisposed to El Salvador given the number and character of current investors brought in during the period, such as the Calvo project. This is especially true in an
10 8
PROESA
increasingly competitive global environment for FDI, where investing corporations are apt to conduct their due diligence both with government officials and established investors in similar industries. Quantitative performance measures other than costs/investment return are worth developing to help evaluate the success of this sort of campaign. PROESA set internal targets and assessment factors, such as the number of appearances in targeted sector publications, and the number of inquiries generated by the advertising. In addition, PROESA staff members were given specific goals in terms of lead generation, cold calls, mailings, site visits and effective investment, although these were based on historical trends and statistics, and may not necessarily have been tied exclusively to the image-building campaign. It is a simple matter to count investor contacts before the campaign begins and compare this base with the volume of new contacts delivered as the campaign progresses. PROESA could also systematically canvass investors contacting the agency about what led them to consider El Salvador, and ask directly whether they have heard about El Salvador Works. For current investors, PROESA could ask what role the agency may have played in their decisions and how they could use the agencys help going forward. Ultimately, it may be hard to ascertain whether the success of El Salvador in attracting FDI is solely or even primarily due to the campaign. It is hard to know what would have happened in the absence of any such action. Clearly, El Salvador was aggressively moving on many fronts to attract FDI and a coalescence of efforts determined the campaigns success.
Effective Image Building

Once it is determined that the timing is right to launch a new message, an effective image-building campaign should be designed to accommodate the full spectrum of investor needs at various stages of the conversion process (i.e., to smoothly move the investor from targeted prospect to likely investor to newly established investor). PROESA started the campaign with a good investment climate, thoroughly planned the key elements in the marketing mix, and responded to unanticipated needs as they materialized. First and foremost, El Salvador had evolved into a good product to market; it had a real reform process underway and an established track record. The campaign would provide the impetus to get targeted investors interested, but it was understood from the onset that the fundamentals of the opportunity would have to hold up to investor scrutiny within the context of the competitive environment in specific sectors. PROESA was aggressive in investor targeting and the need to focus its efforts. It also recognized that targeting must systematically extend to hundreds of individual investors. The objective was to not wait for business to walk through the door, but to identify companies and target them, and then capture each individual prospects attention. After determining the sectors where El Salvador could most likely compete effectively for FDI, the agency incorporated its competitive analyses into a solid, simple message that played on acknowledged strengths. El Salvador Works is memorable and has many levels of positive meaning, not the least of which recognizes that investors decisions are based on critical dimensions beyond absolute costs, for example, a strong work ethic among local employees. The campaign utilized a coordinated dissemination of the message through advertising, direct marketing and follow-up efforts, and supportive channels. Among the examples of these channels, industry-specific media helped leverage the impact of the campaign, and the Salvadoran embassies helped extend the campaign to top prospects they identified in countries worldwide. In addition, as the campaign progressed, it became necessary for PROESA to develop a network
PROESA
109
of other state agencies and service providers to handle the influx of inquiries about various aspects of El Salvador and its FDI opportunities. This networking continued after investments were made, through PROESAs outreach to local businesses that might serve as suppliers, partners or vendors to the new investing companies. PROESA built in feedback mechanisms to monitor the results of the campaign and to make corrections as needed. It was critical to plan for investor servicing before the first lead was generated. Consequently, when a US textile mill had concerns about the skill level of the Salvadoran labor force, PROESA was able to tap into INSAFORP (the governments training institution) to open a showroom and demonstrate the proficiency of local workers. Finally, the importance of investor aftercare in the total equation cannot be overstated. The satisfaction of existing investors is critical to increasing FDI, and lays the foundation for expansion investment as investors grow and consolidate their operations. When PROESA helped to bring about change to procedures that were complicating the visas for Asian technical workers, the agency demonstrated its understanding of the importance of personalized follow-up with existing individual investors.
Next Steps
Following its early success, PROESA wanted to continue the campaign in the US and Mexico, targeting new sectors. In 2003, the agency was looking at various public relations and outreach activities geared to help El Salvador generate increased FDI by leveraging the increased market access provided by CAFTA (the new Central America Free Trade Agreement with the US to be signed in 2005). It was clear to the agencys management that El Salvador Works should incorporate these new messages. Another set of challenges pertained to the funding and development of activities designed to ensure that existing investors continue to view El Salvador as the most attractive option for locating their operations. PROESAs investor aftercare activities subsequently were strengthened to provide a more consistent and proactive service to established investors. PROESAs case raises the universal issue of competing priorities, and the challenge of how best to allocate funds for image building after an initial period of positive results. Does it make sense to continue an image-building campaign in El Salvador today? There are several considerations on both sides of the argument. The campaign was new and did not run for very long. Today it may no longer be necessary, as El Salvador can demonstrate a good track record in dealing with foreign investors. At the same time, potential investors may have so many other inputs from competitive locations that the message may need to be reinforced, or readjusted to address current dynamics. Even if the campaigns focus is just the few sectors originally targeted in the US, that is a potentially large market. It should also be considered that the US is not the only market for new FDI. Europe also offers significant potential and CAFTA will present new opportunities, as well as other forms of competition. In fact, as a matter of discussion, there are as many good reasons to continue the campaign as to reevaluate it. Finding the best solution for PROESA may ultimately rest in the strategic timing of future efforts. Like many of the considerations important in the decision to launch the campaign, the decision whether or not to continue PROESAs campaign requires an examination of the campaigns performance objectives in relationship to timing. Expected performance milestones set in place at the onset of the campaign will guide decisions on the next phase. These parameters may help set a decision-making framework for future advertising activity:
110
PROESA
How long is long enough? The campaigns effective duration can be quantified in terms of the number of targeted prospects reached, the number of qualified prospects at various stages of the pipeline, the number of investments secured, and the number of jobs created during the campaign period. PROESA established short, medium and long-term overall agency targets, as well as performance assessments related specifically to the campaign. When a range of these objectives is reached, it is probably safe to say the campaign has extended to its fullest fruition in terms of performance. However, as discussed earlier, it may be difficult to isolate the campaigns impact from other agency activity. At what point have diminishing returns set in, and how can this be determined? It may become necessary to determine if the message is still meaningful, and if not, if it is still better than no message at all. Perhaps at this point a postcampaign survey of targeted investors is in order to help clarify the campaigns impact. In most cases, a strong, positive message will have residual effects well after the initial campaign push, but will require reinforcement and careful monitoring, and may need an overhaul if perceptions change for any reason. Is the pipeline of qualified potential investors still robust? This measure is likely the best gauge for developing an ongoing strategy. If the campaign delivered a volume of high-quality prospects that have not yet been fully cultivated, then the agency has a solid pipeline to further pursue, perhaps for several months. However, it is necessary to continually feed the prospect pipeline as it becomes depleted, so as to keep enough potential investors moving through the process to meet foreign investment goals. In addition to advertising in trade magazines, PROESA used many sources to generate targeted leads (e.g., mailings, industry events and teamwork with the Salvadoran embassies). Is it possible to further extend and leverage the initial investment without a commensurate outlay of funds? If the pipeline is fairly robust and perceptions remain positive, it may be possible to extend the campaign with intensive follow-up and focused networking, direct mailings and relationship strengthening of existing investors. At this point it is also useful to promote the campaigns positive results within the target audience and include existing investors (who will also strongly influence serious prospects when they visit El Salvador). PROESA may want to test several focused outreach components that will serve as a bridge program leading up to the next intensive advertising campaign.
PROESA faces the challenge of maximizing the potential for FDI it has helped to identify and promote. The early marketing initiatives incorporated under the El Salvador Works image-building campaign helped to bring PROESA to the next level of investment promotion. PROESA must now focus on investor satisfaction and retention, as well as on additional new investments.

1) What is the role of image building in investment generation, and how do you decide when it is time to launch a campaign? 2) How was El Salvadors investment climate improved in the years leading up to
PROESA
111
the campaign? From an investors perspective, describe the salient aspects of El Salvador at the time of the campaign. 3) What were the specific components of the campaign, and what foundation did PROESA put in place to further the image-building process? 4) Do you consider PROESAs campaign a success? What are the best measures for determining success in an image-building effort? 5) Should PROESA continue to devote resources to image building? If so, how should the budget be allocated between image building, other investment generation efforts and aftercare? 6) What next steps should PROESA take related to image building, and how should the agency make this decision? 7) How can PROESA leverage its investment in image building thus far toward increasing FDI into El Salvador?
11 2
PROESA
Endnotes
1
These included 75 companies in agro-industry, 202 call center companies, 124 companies in electronics, 232 companies in manufacturing, 665 companies in textiles and apparel, and 20 companies in the tourism sector. Moodys credit risk rating for the long-term debt of El Salvador in foreign currency was Baa3. Corporations are not obliged to register increases in equity during the terms of their investments.
2 3
PROESA
113
Exhibit 1 Economic Indicators of El Salvador
POVERTY and SOCIAL El Salvador 2003 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions) Average annual growth, 1997-03 Population (%) Labor force (%) Most recent estimate (latest year available, 1997-03) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% of population age 15+) Gross primary enrollment (% of school-age population) Male Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ billions) Gross domestic investment/GDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports Present value of debt/GDP Present value of debt/exports 1983-93 (average annual growth) GDP GDP per capita Exports of goods and services STRUCTURE of the ECONOMY 1983 (% of GDP) Agriculture Industry Manufacturing Services Private consumption General government consumption Imports of goods and services 31.2 22.3 16.6 46.5 77.5 15.8 29.9 1993 14.0 28.2 22.4 57.8 87.6 8.6 34.1 2002 8.7 30.3 23.5 61.0 89.9 8.2 41.2 2003 9.4 31.8 24.5 58.7 87.9 11.3 43.4 2.8 1.3 0.4 1983 3.5 12.1 24.5 6.6 5.6 -5.6 2.0 49.8 19.8 .. .. 1993-03 3.2 1.3 10.6 1993 7.0 18.6 19.4 3.8 15.1 -7.5 1.7 29.2 13.9 .. .. 2002 2.1 0.4 5.7 2002 14.3 16.4 26.7 1.9 13.7 -2.7 1.5 40.8 7.8 43.5 106.5 2003 2.0 0.2 3.4 2003 14.4 16.6 27.6 0.8 13.0 -3.7 2.0 43.8 8.5 .. .. 2003-07 3.9 1.8 5.0 .. 59 70 33 12 77 20 112 114 109 .. 77 71 28 .. 86 11 129 131 126 .. 50 69 32 11 81 10 112 113 111 1.7 2.9 1.5 2.1 0.9 1.2 6.5 2,200 14.4 534 3,260 1,741 2,655 1,480 3,934 Latin America & Carib. Lowermiddleincome
11 4
PROESA
Exhibit 1 (Continued) Economic Indicators of El Salvador
1983-93 (average annual growth) Agriculture Industry Manufacturing Services Private consumption General government consumption Gross domestic investment Imports of goods and services PRICES and GOVERNMENT FINANCE 1983 Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit TRADE 1983 (US$ millions) Total exports (fob) Coffee Cotton Manufactures Total imports (cif) Food Fuel and energy Capital goods Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100) BALANCE of PAYMENTS 1983 (US$ millions) Exports of goods and services Imports of goods and services Resource balance Net income Net current transfers Current account balance Financing items (net) Changes in net reserves 912 1,085 -173 -131 108 -196 392 -195 .. .. .. .. .. .. .. .. .. .. .. 13.3 10.6 0.7 3.0 3.2 3.3 5.2 -4.1 8.8 7.9
1993-03 0.9 4.8 4.9 3.0 3.6 1.9 2.9 7.9
2002 -0.5 2.8 2.5 2.3 1.3 -7.2 -1.5 0.5
2003 6.0 4.8 4.0 -0.2 3.6 4.2 0.5 5.2
1993 18.6 12.8
2002 1.9 1.3
2003 2.9 -1.2
.. .. ..
.. .. .. 1993 605 235 35 309 1,924 441 124 565 68 88 77
11.8 0.4 -3.9 2002 1,234 107 44 1,073 4,082 1,198 175 883 55 83 66
12.4 0.6 -3.7 2003 1,357 .. .. 1,080 3,926 .. .. 906 55 84 66
1993 1,273 2,487 -1,213 -129 823 -519 663 -144
2002 3,810 5,887 -2,077 -287 1,980 -384 260 124
2003 3,980 6,255 -2,275 -325 2,069 -531 550 -19
PROESA
115
Exhibit 1 (Continued) Economic Indicators of El Salvador
Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$) EXTERNAL DEBT and RESOURCE FLOWS
.. 2.8
645 8.7
1,623 8.8
1,607 8.8
1983 (US$ millions) Total debt outstanding and disbursed IBRD IDA Total debt service IBRD IDA Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers 1,745 106 26 202 14 1 158 294 -19 28 0 0 7 6 1 8 -8
1993 2,033 220 22 294 32 1 611 317 -3 16 0 93 51 18 33 15 18
2002 5,829 371 15 453 46 1 107 164 1,211 208 0 143 63 28 35 19 17
2003 6,305 372 14 514 54 1 .. 78 310 .. .. 0 38 38 0 17 -17
Note: 2003 data are preliminary estimates. This exhibit is excerpted from El Salvador At a Glance, the World Bank Group. Complete At a Glance data and tables are available by country at www.worldbank.org under Data and Statistics.
11 6
PROESA
PROESAs mandate is to attract investment in order to generate abundant job opportunities, the transfer of technology and a diversification of the El Salvadoran industrial base. The agency is governed by a Board of Directors, which includes a mix of private and public sector representatives. The President of El Salvador appoints the private sector representatives on the board. The agency reports to the Vice-Presidency of El Salvador, and enjoys close support from and a strong working relationship with the Ministries of Economy and Foreign Affairs.
Composition of PROESAs Board of Directors (in 2003)
Public Sector Representatives 1. Mr. Carlos Quintanilla Schmidt, Vice President of El Salvador; also the President of PROESA 2. Mrs. Mara Eugenia de Avila, Minister of Foreign Affairs 3. Mr. Hctor Dada, Vice Minister of Foreign Affairs 4. Mr. Miguel Lacayo, Minister of Economy 5. Ms. Blanca de Magaa, Vice Minister of Commerce and Industry 6. Ms. Patricia Figueroa, Executive Director of PROESA Private Sector Representatives 7. Mrs. Margarita de Cordova, Private Businesswoman 8. M s . B e a t r i z P e r a l t a Av a l o s , Multinational Executive 9. Mr. Eduardo Freund, Private Businessman 10. M r. J o r g e B a h a i a , P r i v a t e Businessman 11. Mr. Enrique Origgi Palomo, Private Businessman 12. Mr. Jacobo Gadala Maria, Private Businessman
PROESA
117
Exhibit 3 Organizational Structure and Staffing
Structure
PROESA is organized in five main departments: 1. Market intelligence This department has two main responsibilities: undertaking research and providing general information on any issues relating to the investor, and managing the information technology systems and needs of PROESA (including the website). The department established an internal library of documents that is available in the internal computer network, thereby enhancing PROESAs organizational abilities. The department is also in charge of working with the American Chamber of Commerce to prepare the Doing Business in El Salvador guide. Investment promotion This department is in charge of undertaking promotional activities in each target sector. Based on the philosophy that better results can be achieved with a sector-specific division of labor, the department put each promotion officer in charge of one of the target sectors. The department tries to adapt its strategies to the changing business environment and needs of El Salvador. For example, the department initially followed a strategy designed to attract apparel manufacturers and suppliers in order to address the unemployment issue in El Salvador. Given the increasing number of apparel operations in the country, the department shifted its strategy to attract textile mills in order to increase El Salvadors ability to deliver the full package,3 which would ultimately increase the competitive position of the country. 3. Communications and public relations This department is in charge of the agencys communications and its public relations. Its responsibility is to develop public relations and communications with international investors, and also to lobby within the country so that Salvadorans understand what PROESA does. This is intended to make it easier for the agency to get the publicity it needs and access to the resources it requires. Logistics and aftercare This department was established as a result of PROESAs recognition that aftercare services are important in order to maintain satisfied customers and to promote expansion of existing businesses. Administration and finance This divisions main task is to meet PROESAs obligations under the financial administrative law. The department established acquisitions, general accounting, treasury and budget, and support subdivisions.
2.
Full package contracting is a concept developed by offshore apparel contractors to make it easier to accommodate a long distance relationship. Full package contractors work with a manufacturer to do virtually any combination of production steps, from fabric purchase, pattern making, sample making, and size grading to marker making, cutting, sewing, and trimming to fabric finishing treatments and post curing of finishes and pressing, folding, packing, and applying hang tags and labels to make a garment ready for the retail floor.
4.
5.
118
PROESA
www.miga.org

Case Studies

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case Studies

Uploaded by

Copyright:

Available Formats

Competing for FDI

INVESTING IN DEVELOPMENT SERIES Multilateral Investment Guarantee Agency

Printed on recycled paper

Competing for FDI

INVESTING IN DEVELOPMENT SERIES Multilateral Investment Guarantee Agency 2005

Building a competitive product package for attracting FDI

THE CASE STUDY OF CZECHINVEST

Foreign Direct Investment Record

Table 1-1 FDI Inflows to the Czech Republic, 1995 2002

FDI (US$ billions)

1995 1996 1997 1998 1999 2000 2001 2002

2.57 1.43 1.30 3.72 6.32 4.99 5.64 8.44

Source: Czech National Bank, March 2003.

The Czech Offer

Fulfilling on the Offer

Questions for Discussion*

Exhibit 1 Economic Indicators of the Czech Republic

Europe & Central Asia 473 2,570 1,217

Uppermiddleincome 335 5,340 1,788

.. 63 69 31 .. 91 3 103 104 102

.. 76 73 19 .. 89 9 104 104 104

2003 85.4 .. .. .. . .. 1.0 40.8 .. .. .. 2003-07 .. .. ..

2002 3.8 39.6 .. 56.7

Exhibit 1 (continued) Economic Indicators of the Czech Republic

.. .. .. 2003 .. .. .. .. .. .. .. .. 2003 .. 2.9 .. .. -6.9 2003 .. .. .. .. .. .. .. .. .. .. ..

Domestic prices (% change) Consumer prices Implicit GDP deflator

1993 18,952 18,466 486 -118 .. 456 2,574 -3,029

2002 45,258 46,877 -1,619 -3,781 .. -4,523 11,150 -6,627

Exhibit 1 (continued) Economic Indicators of the Czech Republic

1993 9,156 315 0 1,394 19 0 50 173 1,412 654 1,125 80 93 0 93 19 74

2003 34,899 66 0 6,516 145 0 .. 158 466 .. .. 0 0 135 -135 10 -145

Exhibit 2 Summary Q&A

Exhibit 3 FDI Flows into the Czech Republic

Source: Vienna Institute for International Economic Studies, 2003.

Exhibit 4 Mandate and Governance Structure

Exhibit 5 Budget and Technical Assistance

(Continued on next page)

Table 1-3 CzechInvest Effectiveness Analysis

1993 5.2 2.1 7.3 7.3 0 14 0

Note: JICA abbreviates Japan International Cooperation Agency.

Exhibit 6 Organizational Structure and Staffing

Figure 1-1 Organizational Chart of CzechInvest

Exhibit 7 Human Resources at CzechInvest

Table 1-4 CzechInvest Staff Training

Courses for Assistants English Correspondence

Departments All Assistants

Exhibit 8 Scoring System Used To Monitor Foreign Offices

Table 1-5 Scoring System for Foreign Offices

1 point per occurrence

Exhibit 9 Image Building Among Investors

Exhibit 10 Impact Statement by CzechInvest

Source: Vienna Institute for International Economic Studies, 2003.

Exhibit 11 Annual Targets of the Marketing Department

Exhibit 12 CzechInvests Strategy

CzechInvests Strategy 2001-2006

Exhibit 13 Investment Mediated by CzechInvest

Executing a turnaround strategy to focus on attracting FDI

INVESTING IN DEVELOPMENT UIA

INVESTING IN DEVELOPMENT UIA

INVESTING IN DEVELOPMENT UIA

INVESTING IN DEVELOPMENT UIA

Foreign Direct Investment Record

Source: World Investment Report 2001, UNCTAD; Bank of Uganda.