How can developing countries attract foreign direct investments?

Abstract

Developing countries are increasingly reliant on foreign direct investment (FDI) to finance development. Yet, despite increased spend on investment promotion, these countries consistently achieve a smaller share of the FDI pie than developed countries. To understand how developing countries can achieve a greater share of FDI this study examined the efforts of the Mozambican Investment Promotions Agency (IPA), how they tackle investment promotion and how they have performed versus global best practice, their ambitions and the expectation of investors. Through document review, quantitative analysis and qualitative interviews the study shows that Mozambique has had a mixed performance at attracting quality FDI in line with their stated ambitions. It provides insight into the cost of a poor investment climate when it comes to FDI and investment promotion and the importance of tackling the hidden costs of corruption and additional costs from disorganized value chains. It also shows that the IPA will need to modernize its approach should it want to achieve its ambitions. This requires becoming a more proactive business insight partner for investorscapable of project design and development- and one that carries out more nuanced, focused investor targeting.