How do you solve a problem like measuring FDI success?
As economic development professionals, we work with agencies in Investment Promotion and Export Promotion (IPAs & EPAs) from around the world, at both national and subnational levels. Many of our strategic projects will involve:
- Defining performance targets for the organisation
- Developing a mechanism for collecting data to measure against these targets
- Carrying out an audit of the organisation, whereby we implement this mechanism and report on our performance findings.
So, what makes a successful organisation?
If we just take the FDI side, it’s remarkable the different levels of sophistication out there, which is not necessarily defined simply by the available staffing and financial resource of the IPA. Counting FDI project numbers is often used as the typical headline, largely because this is the easiest data to collect, while available data on job creation, capex, or gross value add is often too patchy to be useful, and estimates of these figures can be unreliable.
The UK’s Department of International Trade is at the forefront of moving beyond this simple numbers game, by looking to measure outcomes, rather than outputs. This means measuring how projects have affected the net employment rate, average wage rates, R&D intensity, technology transfer, balance of payments, and other macroeconomic effects. Measuring all these is complex, but other IPAs are also starting to move in this direction.
We also see examples of agencies, particularly those that are newer, or represent a location where the investor pipeline is weak, will use their own inputs as a measure of success. For example, were they able to spend their full marketing budget? How many events did they attend? How many meetings did they have? Now some of these measures may have value as secondary indicators, but a key role for us as advisors is to try to move IPAs and EPAs on from this dial, shown in the diagram below. Ultimately, these organisations are accountable to their funders, which is normally the taxpayer. It is not enough therefore to point to inputs / activities alone as an indicator of success.
The demand for agencies to better measure their performance will inevitably intensify. Given the geopolitical climate globally, it’s hard to see project numbers, (or job numbers / capex) showing consistent upward trends in the coming years. Moreover, the trend in average project sizes is downwards, as the nature of FDI continues to evolve. Therefore, an IPA will need to be able to show that a life sciences project of 10 jobs can have as much positive economic impact as an industrial manufacturing project of 100 jobs.
Further to this, the expectations of the taxpayer are broadening: in particular, the sustainable agenda is ever more prominent, in the context of pressures from the Paris Agreement and international groups like Extinction Rebellion. So IPAs must be able to respond, and the UN’s Sustainable Development Goals provide a good frame of reference. Indeed, IPAs can incorporate some of these goals into their strategy, with accompanying performance indicators.
To conclude, OCO continues to be confident of the vital role that IPAs play in the economic development of locations – but changing times dictate that how success for an IPA is defined, and corresponding accountability, must also evolve.
 Numerous sources demonstrate the existing volatility in FDI globally that has existed in past 10+ years. See for example, http://report.fdiintelligence.com/ or https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2460
 For more on this, see UNCTAD’s paper on Promoting Investment in the Sustainable Development Goals https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2382