What gaps need to be addressed to boost foreign direct investment into Dubai?
Different to investment attraction that thrives in the face of fierce competition, in what is a winner takes all game, investment aftercare nurtures what is based locally and seeks to create additional value for the economy. the lead author of Dubai’s FDI guide said
by Anup Oommen, Digital Editor, Arabian Business
There is a need to review the whole investment life cycle – which includes the post-investment stage – in order for economies to thrive, an expert told Arabian Business.
While sufficient attention is given to attract investors into leading economies, quite often, budgets aren’t set aside to retain these foreign investors and enable growth.
With a specific focus on “investment aftercare”, the Dubai Investment Development Agency (Dubai FDI) at the Department of Economy and Tourism has launched a guide on foreign investment in Dubai that aims to aid FDI practitioners and policymakers on retaining investors.
The FDI guide – which is a first of its kind to systematically map the last step of a foreign investor’s journey – has been written by leading FDI advisor Carolina Arriagada Peters; senior economist, David Coble; assistant professor Toby X Li; and serial foreign investor Brendan Lewis.
Carolina Arriagada Peters (below), the managing director of Cities & Collaboration Ltd and founder of fdiCampus, shared her thoughts on the gaps that need to be addressed within the FDI ecosystem.
What challenges spurred the need for the Investment Aftercare Guide?
Carolina Arriagada Peters: As an FDI practitioner during my time at London & Partners, the UK-based investment promotion agency (IPA), I learnt first-hand how focus would move to client retention during the financial crises in 2008, only to see it move away years later. That puzzled me; if investors were important enough to take care of them during crisis, why would budgets for the function be removed short after?
I looked around and noticed that it was a global pattern in FDI. The few IPAs that had a different approach, also happen to be the most awarded IPAs. That fact gave a clear hint: for host economies to excel, they needed to look at the whole investment life cycle, which necessarily included the post-investment stage. However, this was far from reality.
Some voices called for change: UNCTAD wrote a paper about it in 2007 and the FT wrote an article about the same in 2012. Nonetheless, the industry remained focused in attraction and promotion. In my eyes, this was an oversight.
Here is a quote from the book: “By disregarding the positive externalities foreign investors bring to their locations, host economies unconsciously impoverish the communities they serve. Correcting this oversight should become a priority for the FDI industry.”
Writing the book is the way we authors made Aftercare a priority. The book eliminates the burden of lack of capacity or lack of budget.
Now every single IPA, can learn about Aftercare, can be inspired by examples of how other players do it and can even follow a step-by-step methodology on how to do it. There is now no excuse to overlook aftercare.
How does the UAE fare in terms of retaining investment and encouraging follow-on investment? What are they key steps to improve this?
Carolina Arriagada Peters: During my stay in Dubai, the investment promotion agency Dubai FDI organised a city-wide workshop to introduce Aftercare to many local stakeholders.
Having worked, advised, trained, supported, or interviews over 100 IPAs from all over the world, this is the first time that I see a whole FDI ecosystem gathering to learn about Aftercare.
This was fantastic and I hope to see many more similar gatherings not only in Dubai, but in the whole industry. Because local collaboration is the cornerstone of Aftercare.
It is about learning from each other, identifying gaps, thinking laterally how to connect the dot and imagining new roles foreign investors could play in shaping the future of the host economy.
How important is it to map out a foreign investor’s journey? What impact will this have on investments and ease of doing business?
Carolina Arriagada Peters: Mapping a foreign investor’s journey is the starting point to provide investor services that are relevant. For example, a fintech company founded five years ago, that has invested in five different economies was likely to experience strong demand during the pandemic due to the move towards digital services.
That company is likely to be a candidate to receive further investment from VCs to consolidate their expansion. That case is completely different to a manufacturing company, that saw their value chain disrupted and ordered cancelled during the same pandemic, that had to lay off staff and that is struggling to pay suppliers. Both companies require completely different services and support.
The key here is relevance. Mapping the investor journey and anticipating the type of services required in the different stages of the investment cycle, as well as the economic cycle is not only efficient for the IPA, but effective for the company.
With that homework done, IPAs react faster, are more diligent in delivering solutions investors actually needs and are able to better segment whom to provide support. This last point is important.
When it comes to Aftercare, IPAs face a volume challenge; there are new companies arriving year after year. Which ones should they serve? Mapping the investor’s journey helps answer that question and gives IPAs a position of strength when engaging with investors.
What are the key gaps that IPAs in the UAE and the region need to bridge to spur FDI inflows?
Carolina Arriagada Peters: Aftercare is not a new function, in the contrary. The leading IPAs all have been servicing their established clients for decades. This means that there are many case studies from which to learn from (and in the book we included over 80).
What is missing on a global level, is for the whole industry to systematically look after investors not only during times of crisis, when there is an evident risk of companies divesting, but also in quiet times.
Hurdles to achieving this include recognising that Aftercare responds to different drivers and timelines than investment attraction; that client engagement needs to be designed with a long-term view; and that essentially the Aftercare team is the whole local ecosystem, not only the team at the IPA.
Once host economies embrace these basic principles, Aftercare becomes localised, it drives a sense of place where both foreign investors and local players find value and start co-creating in innovative ways.
You asked about areas to further expand Aftercare in the UAE. An area that I would be keen to learn more is to look into cross-border Aftercare collaboration.
In other words, how could different IPAs across the Emirates collaborate to grow and retain investors that are already established here? There are some examples globally of Aftercare support between neighbouring regions in Europe, so that might be some cases you will want to explore.
Any other thoughts that you’d like to share that you think are critical to the Middle East economy/businesses?
Carolina Arriagada Peters: A sometimes-overlooked aspect of Aftercare is that it is based on collaboration. Different to investment attraction that thrives in the face of fierce competition, in what is a winner takes all game, Aftercare nurtures what is based locally and seeks to create additional value for the host economy.
I am bullish on this one: I believe that “if FDI practitioners and policymakers are better informed about how to work for and with established foreign investors, the world would be a better place. Foreign investors attract a lot of smart people who are not only prepared, but often also ready to join forces with local policymakers or other established companies to address the bigger challenges.”
Post-investment offers a methodology on how to do this. The challenges we jointly face are too big to continue overlooking Aftercare is a driver of sustainable development. And this is not different here in the Middle East.
How can host economies work closer with established investors to address the water shortages? Or how can we drive the gender agenda? What is the role those foreign investors play in post-conflict and peace keeping? These are big questions that don’t have a single answer and it will take many local conversations, one investor at a time, before we find suitable answers.
Doing so will sooner or later create a movement, which certainly will create common value that fosters more inclusive and sustainable societies. That’s the big game Aftercare is after.
Article published in Arabian Business May 5th, 2022