Economic development tools: attracting investment, business and talent

To understand how to develop prosperity within the economies, economic development managers know their tools, frameworks and required practices. In every dimension, economic development has become more complex and challenging. Nations are moving from a relatively simple game of checkers to a sophisticated game of chess. The challenges to economic development are creating exciting, new opportunities.

For example:

— Entrepreneurs and high-growth enterprises are in pursuit of new ways to leverage the resources provided by knowledge.

— New energy requirements and delivery systems are emerging directing the users to focus on renewable energy sources.

— Old-line manufacturers are joining hands to explore new opportunities in different segment of businesses such as healthcare, fresh water technologies, renewable energy, advanced materials and advanced transportation.

— New agribusiness systems are emerging in the shape of organic farming.

— State and local government managers are shifting their focus to entrepreneurs, innovation, collaboration and new ways to support emerging high-growth companies.

On may note that for development economic managers do possess diverse tools such as attracting the FDI, immigration, developing appropriate regulations and tourism. In the following paragraph, the discussion focuses how effective are these tools for economic development.

Bilateral Investment Treaties (BITs)

There exists competition amongst the businesses, similarly competition exists among the states. The states compete in attracting investment, competencies, businesses and workforce. For attracting FDI, BITs have been used as an effective tool.

The investment attracted from foreign sources is termed as foreign direct investment or FDI.1 In order to attract the FDI, bilateral investment treaty regime came into existence and first such bilateral investment treaty was signed by Pakistan and Germany in 1959.2 These mutual treaties for investment provided safeguards to the foreign investors and prohibited the successive political governments to undo agreements and mutual co-operation agreed to by an earlier government with the foreign investors.3

Although originally BITs were typical contracts – mainly to protect investors from the developed countries against the potentially ‘unstable’ legal system of developing countries, but many BITs now exist even between the developed countries. This tool has been effectively used by many nations.

Immigration

Regulations for allowing foreign nationals to come and settle in a country were introduced to attract the workforce, wealth, knowledge and businesses. Many successful schemes were introduced by different countries and as a result of that a large number of people (belonging to diverse countries) migrated and bringing with them wealth, knowledge, business acumen and competencies.

Different patterns were followed to attract investment and immigrants. For example, Singapore, to begin with, offered a tax-free market and attracted tourists who may like to spend their money to buy cheap goods and services.4 Later on, Singapore structured its laws and regulations to safeguard foreign investments, to issue work permits and to allow immigration. That is how the resources, competencies and workforce were attracted to increase the momentum of the economic development.

Immigration as a tool to bring economic integration has been used by many countries; a study on Denmark5 suggests a strong and positive link between immigration and increased import, export and FDI inflows. The linkage was stronger for import than export, and varies in strength across product differentiation, country origin characteristics, institutional quality and economic development. Moreover, the study has confirmed that the knowledge possessed by immigrants was actually passed on to their descendants, and these descendants played a significant and positive influence on the growth patterns of their new homeland.

These steps enable an innovative economy to enter into high-tech and knowledge-based research-oriented industries like pharmaceuticals and electronics.6

Responsive regulations for markets

Tanzania attracted sizeable FDI during 2006 through 2011.7 All this was achieved by providing an enabling environment for the development of private sector. For example, Tanzania enacted a number of investment-related laws and policies, introduced financial reforms, liberalised trading regime; put in place an attractive investment package; and undertook a number of initiatives to promote and develop the private sector. Tanzania, like many other countries across-the-globe did manage to build and maintain attractive and predictable investment climate by effectively using the tools of development.

Tourism

Tourism as a tool of economic development brought healthy changes to many economies. The multiplier effect of tourism development in creating employment opportunities and distribution of wealth can be visualised through a variety of economic activities predominantly in the SME sector and the advantage of SMEs. SMEs link micro enterprises from one side and large-scale corporate sector on the other side. Some of the key objectives achieved through this tool include:

1. Increase in (tourism-related) employment.

2. Distribution of economic benefits of tourism to a larger cross section of society.

3. Increase in the foreign exchange earnings.

4. Contribution towards improving the global trade and economic linkages.

The discussed framework and developmental tools help political leaders to prioritise public investment for economic development. For a country to prosper, a relatively small number of well-placed public investment schemes can unlock its strongest economic potential. The tool can help in open up and leveraging new possibilities for private sector investment, for launching the key drives for the success of the region.

These tools are effective, though, the successful leaders may have to think and act strategically through a unified planning process. They will have to improvise within a clear strategic framework, and will have to make complex decisions about investments by designing unique collaborative process.

The investment process is similar to improvisation in jazz. Musical improvisations are not free-form end chaotic: they are based on a foundation. The structure gives players a focus within which to develop their ideas. In the end, sound strategies adapted as circumstances change and new opportunities arise.

Successful economic leaders design a process for making economic development that answer three core questions:

1. Who guides the strategy and investment process? Successful economies recruit leaders who share some common characteristics. They are not drawn from a static list of “stakeholders.” Instead, successful leaders are people willing to supersede traditional organisational and political boundaries.

2. What investments hold strong potential for a country? These economies define their strategies within a clear strategic framework. This framework provides stability and focus on the end-game.

3. How do we prioritise investments that hold the most promise? Successful economies produce effective strategies in an open, collaborative process that marries transparency with objective analysis. Public economic development investments that are the product of narrow political participation normally fail. In contrast, public investments which are the product of open participation and strategic thinking can create sustainable transformations.

(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi. To see author’s other areas of interest visit Zafars Blog on International Studies http://blogoninternationalstudy.blogspot.com/)

1. See ‘Competing Choice’ by Zafar Azeem, Aries Publishing House (2002).

2. BGBI.1961 II 793.

3. Today almost 3000 BITs are in force. UNCTAD Transitional corporations and internationalization of RaP, (2005).

4. For to study Singapore’s economic development sec’ Competing Choices’ by Zafar Azeem, Aries Publishing House (2002)

5. Immigrants as Economic Integrator: Evidence from Denmark, Aarhus University, 2012

6. 1d. n1. See the case of Singapore

7. Social accountability session report on the contribution of FDI in Tanzania: August 2012