‘Then the priestly leaders of the Parsis were brought before the local ruler…who presented them with a vessel full of milk to signify that the lands could not accommodate any more people. The head priest responded by slipping some sugar into the milk to signify how the strangers would enrich the local community without interfering with them. They would dissolve into life just as the sugar did to the milk, sweetening the society but not unsettling it, – the Parsi legend.
Globally, product and service value addition has become very specialized and of significant importance over the years, at public and private levels of economic spheres. As countries become more interconnected through technology advancement, trade still maintains its impetus as a critical driver. The dynamism of international trade has seen countries improve their economic capacities and this has been the basis for the establishment of Investment Promotion Agencies IPAs – bodies directed to promote socio-economic benefits of particular jurisdictions. Mandated to attract both local and foreign direct investments either at international, national or sub-national levels, IPAs rely on major economic endowments present in their sovereignty, to rope in investors into their territory, hoping to stimulate further economic participation that will ultimately foster development whilst simultaneously solve socio-economic challenges such as unemployment. In cities such as Durban and Cape Town in South Africa, IPAs have been established, attracting leading global brands ,thereby uplifting not only the status of both towns globally but also the economic status of their residents. Unfortunately, the same cannot be said for Kenya as counties are struggling to establish IPAs, with just a handful such as Mombasa (Mombasa Investment Corporation) taking the initiative. With this in mind, how then can county governments leverage on establishing IPAs to viably spur economic growth?
Cape Town, as a benchmark, has set itself as a dynamic economy and a regional hub for entrepreneurship in the Western Cape. It is the second most important contributor to national employment amongst South African cities. Adding to this, it has consistently recorded higher economic growth rates outpacing the national average annual growth rate. Its investment promotion agency – Invest Cape town, has played a key role in marketing Cape Town as the go-to investment and innovation center to investors, making it possible for companies such as Amazon, to setup their Africa headquarters in the locality. The same can also be said for Invest Kuala Lumpur (Invest KL), which has attracted over 80 multinational companies with an estimated investment of USD 2.5 million. The success rate of Invest Cape Town and other IPAs such as Invest Durban, Invest Sao Paulo and Invest Parana in Brazil boils down to three critical factors – these IPAs are ran and managed as public-private initiatives which the local government and private enterprises join efforts to promote the area and avoid being considered as ‘just any other public office’. Secondly, these institutions leverage on data to understand which sectors have the best chance of succeeding considering the current level of infrastructure and amenities available. Thirdly, these institutions are connected to other national business support institutions hence offer a one-stop shop solution for investors interested in setting up without necessarily making a stopover at the capital city. Worthy to note is that these IPAs have enhanced their value proposition beyond ‘hand-holding’ the investor. Take for instance Invest Sao Paulo in Brazil provides an investor settling financing scheme which offers short-term credit to potential investors seeking to establish their premises in Sao Paulo.
Kenya’s position in setting up an investment promotion agency led to the formation of the Kenya Investment Authority through the enactment of the Investment Promotion Act of 2004. Although still in existence, Kenya Investment Authority has tried to market Kenya as an investment friendly and profitable country though with not so impressive results.
Best practice
The agency relies on the 2004 Act which by then did not recognize nor envision the establishment of county governments thereby creating a huge disconnect and coordination challenge with the existing governance structure. At the county level, the relevance and operability of running an investment promotion agency is still raw, other than Mombasa County which has established the Mombasa Investment Corporation, through the enactment of the Mombasa County Investment Corporation Act of 2019. Apart from that, most counties are yet to take advantage of this economic development instrument to boost their development agenda and avoid the over-reliance on the national government.
For county IPAs to work efficiently they need to develop an implementation and operationalization strategy with private sector actors in the counties, seek assistance, coordinate and support the Kenya Investment Authority in mapping out unique investment opportunities in the counties, develop an investor incentive program and be financially and technically resourced to handle the ever complex and changing investment environment.
In literature, there are many factors that influence FDI performance in an economy; the population, political stability, infrastructure, market growth, inflation levels, barriers to trade et al, however, investment promotion agencies act as a push factor and information corner for investors, who thereafter gain confidence in a city and partake in economic development.
