THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency UNDERSTANDING INVESTOR DECISION-MAKING OVERVIEW OF THE SITE SELECTION PROCESS

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency

UNDERSTANDING INVESTOR DECISION-MAKING

OVERVIEW OF THE SITE SELECTION PROCESS

Robert WhyteNairobi, Kenya

October 2010


Drivers of Location Decisions

Most important factors influencing location of companies in 2007-2009 (% of TNC responses)

1. Size of market (21%)

2. Growth of local market (20%)

3. Access to international/regional market (10%)

4. Stable investment environment (10%)

5. Availability of skilled labor force (9%)

Source: UNCTAD World Investment Prospects Survey 2007-09

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What Investors Expect?

1. Economic reasons/motivations to invest

I. Market

II. Resources

III. Efficiencies

IV. Strategic assets

2. Good business climate for FDI

3. Good business facilitation

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Investor surveys tell us:


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Investment Climate – Investing Across Borderswww.investingacrossborders.org

Investing Across Borders (IAB) is a new World Bank Group initiative presenting indicators on countries’ laws, regulations, and practices affecting how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate commercial disputes.

Indicators of laws and regulations (de jure indicators) and their implementation (de facto indicators).

Focus on 4 policy areas of FDI policy: Investing across sectors

Starting a foreign business

Accessing industrial land

Arbitrating commercial disputes

Sub-Saharan Africa (SSA – 21 economies, including 11 East African economies): Angola, Burkina Faso, Cameroon, Côte d'Ivoire, Ethiopia, Ghana, Kenya, Liberia, Madagascar, Mali, Mauritius, Mozambique, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Sudan, Tanzania, Uganda, Zambia


Investing Across Sectors in East Africa

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Foreign equity ownership index in telecommunications*(100 = full foreign ownership allowed)

Overall, there are hardly any restrictions on FDI ownership in light manufacturing, construction, tourism and retail. In contrast, many economies still restrict FDI in services industries such as media, transport, electricity, and telecommunications.

In East Africa, the foreign equity ownership index for telecommunications ranges from completely closed to foreign equity (in Ethiopia) to fully open in Rwanda, Mauritius, Uganda and Zambia.

* The telecommunications sector includes fixed-line infrastructure, fixed-line telephony services, wireless infrastructure and wireless services.


Starting a Foreign Business in East Africa

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Total time (in days) to start a foreign business

IAB B

est

The process of starting a foreign business varies within East Africa and ranges from the IAB best performer, Rwanda (4 days), to South Africa, where it takes 65 days. The regional average for Sub-Saharan Africa (48 days) is slightly slower than the global average of the 87 IAB countries (42 days).

Starting a foreign business can take longer than starting a domestic business because of additional procedures required of foreign companies, such as investment approvals. Such approvals are required in Ethiopia (1 day), Mauritius (3 days), Sudan (17 days), and Uganda (7 days).


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Half of the economies measured in East Africa do not allow any form of private ownership of land (all land is held by the state on behalf of the people). Yet it takes 3 times longer to lease land from the government in those countries than to lease land from private owners in the other African countries (such as Kenya) which allow private ownership.

Inside East Africa there is wide variation on the time needed to lease land from the government. The process of leasing land from the government is fastest in Sudan, Uganda and Tanzania and slowest in South Africa and Mozambique. In South Africa the process is particularly slow because government tenders administered by the Johannesburg Metropolitan Municipal Offices are uncommon and slow.

Accessing Industrial Land in East Africa

IAB Best


Arbitrating Commercial Disputes in East Africa

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Total time (in days) to enforce an arbitration award in court (appeal excluded)

IAB Best

Arbitration and other ADR mechanisms are increasingly common dispute resolution tools globally, and East Africa is no exception.

However, indicators reveal the difference between the standards in arbitration laws (de jure) and arbitration practice (de facto). Many East African economies have recently adopted modern laws but despite these reforms, arbitration practice is often rare or non-existent, and often does not conform to the laws. Lengthy time periods for enforcement of arbitration awards in local courts is one of the biggest constraints for efficient arbitration regimes in the region.

The time to enforce an arbitration award varies from 55 days in South Africa to over a year in Ethiopia and Tanzania.


Investor Perceptions of Business Climates

Nevertheless Africa is Well Perceived

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Source: World Investment Prospects Survey 2010-2012, UNCTAD

Level of TNC Optimism for the 2010-2012 Global Investment Environment

1: very pessimistic, 5: very optimistic


Investment Facilitation and the Business Environment

Good facilitation (GIPB score) by IPIs is strongly correlated to the quality of their business environments (Doing Business Rank)

But IPIs may have the biggest impact where they can provide otherwise absent transparency. This is the role of investment facilitation.

Note: GIPB assesses 181 countries’ IPIs

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Weak GIPB Score Best Practice

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The Site Selection Process

Important information:


Business Outsourcing Long-Listing Process: Costs, People, and Business Environment

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A T Kearney Global Services Location Index scoreA T Kearney Global Services Location Index score

Financial Costs40%Financial Costs40%

People Skills and Availability 30%People Skills and Availability 30%

Business Environment30%Business Environment30%

Compensation Costs80%Compensation Costs80%

Infrastructure Costs10%Infrastructure Costs10%

Tax and Regulatory Costs10%Tax and Regulatory Costs10%

IT/BPO experience and skills 40% IT/BPO experience and skills 40%

Labor Force Availability20%Labor Force Availability20%

Language Skills15%Language Skills15%

Educational Skills15%Educational Skills15%

Attrition Rates10%Attrition Rates10%

Country Environment60%Country Environment60%

Country Infrastructure20%Country Infrastructure20%

Security of IP10%Security of IP10%

Cultural Adaptability10%Cultural Adaptability10%

Source: A.T. Kearney


What is the Long-Listing Process Like?

Define projects needs…

Select long list of countries

Broad data comparison >>> Labor Cost, Taxation, Infrastructure

Desk Research >>> Number of locations too long to visit, too expensive!!

2-3 weeks to gather information and move to short list >>> If information not available location will most likely to fall out the list

Very often long-listing is outsourced to site location consultants >>> with few exceptions some few specialized consultants manage long listings and sometimes they also do short-listing too

Information sources are mostly online >>> often site location consultants use their own existing data from other projects

Limited contact (telephone/email) with IPI >>> only when specific information needed

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What can the IPI do to Influence Investors?

Make it into The Long List!!

Understand companies objectives in priority sector

Target only those sectors where country is able to compete (benchmark your location again and again)

Have quality information available to meet company needs at long-listing stage

Be able to source more detailed information for the company at the short-listing stage

Provide international business standards of customer service

Understand who makes decisions

Multipliers (site location consultants) are an IPI best friend!

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Facilitation - information, information, information


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Thank you.

Questions

Documents

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency UNDERSTANDING INVESTOR DECISION-MAKING OVERVIEW OF THE SITE SELECTION PROCESS