THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency UNDERSTANDING INVESTOR DECISION-MAKING OVERVIEW OF THE SITE SELECTION PROCESS Robert Whyte Nairobi, Kenya October 2010

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Drivers of Location Decisions Most important factors influencing location of companies in (% 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

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 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 3 Investor surveys tell us:

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 4 Investment Climate – Investing Across Borders 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

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Investing Across Sectors in East Africa 5 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.

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Starting a Foreign Business in East Africa 6 Total time (in days) to start a foreign business IAB Best  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).

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 7  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

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Arbitrating Commercial Disputes in East Africa 8 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.

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Investor Perceptions of Business Climates Nevertheless Africa is Well Perceived 9 Source: World Investment Prospects Survey , UNCTAD Level of TNC Optimism for the Global Investment Environment 1: very pessimistic, 5: very optimistic

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 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 10 Weak  GIPB Score  Best Practice Weak  Doing Business Rank  Best Practice

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 11 The Site Selection Process Important information:

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Business Outsourcing Long-Listing Process: Costs, People, and Business Environment 12 A T Kearney Global Services Location Index score Financial Costs 40% Financial Costs 40% People Skills and Availability 30% Business Environment 30% Business Environment 30% Compensation Costs 80% Compensation Costs 80% Infrastructure Costs 10% Infrastructure Costs 10% Tax and Regulatory Costs 10% Tax and Regulatory Costs 10% IT/BPO experience and skills 40% Labor Force Availability 20% Labor Force Availability 20% Language Skills 15% Language Skills 15% Educational Skills 15% Educational Skills 15% Attrition Rates 10% Attrition Rates 10% Country Environment 60% Country Environment 60% Country Infrastructure 20% Country Infrastructure 20% Security of IP 10% Security of IP 10% Cultural Adaptability 10% Cultural Adaptability 10% Source:A.T. Kearney

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency The Site Selection Process: It’s all about Information 13  Project drivers  Success factors  Project specifications  Search Area  Countries/ regions  Fatal flaw analysis  Compare costs and conditions IPI provides country and sector information  Field investigations  Verify screening and process-drill down  Identify specific opportunities and risks IPI provides detailed information and field logistics support (site visit)  Risk analysis  Real estate  Incentives  Permitting IPI provides quality contacts, prepares development packages and ensures permits are granted speedily  Transition planning  Facilities plan  Vendor selection  Construction ramp-up IPI services investor to fast-track project implementation Long listingShort listingNegotiationsImplementation

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 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/ ) with IPI >>> only when specific information needed 14

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Who Makes What Decisions? 15 Initiate Need 1)Vice President 2)Operations Manager 3)Director of Corporate Real Estate 4)President 5)COO Suggest Locations (Long List) 1)Director of Corporate Real Estate 2)Consultant 3)Operations Manager 4)Vice President 5)Logistics Evaluate Locations (Short List) 1)Director of Corporate Real Estate 2)CFO 3)Vice President 4)Engineering 5)Logistics Make Decision 1)President 2)CEO 3)Chairman 4)COO 5)CFO From the 1997 Fortune Magazine / Fantus Consulting Survey

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency The Long List for Business Outsourcing… 16 A.T. Kearney Global Services Location Index 2009 (maximum score = 10) What could they do to move up on the list?

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Choosing a Location based on Ease of Doing Business High PerformersTop in Eastern & Southern Africa Top in Other Africa Singapore1Mauritius17Namibia66 New Zealand2South Africa34Tunisia69 United States4Botswana45Ghana92 United Kingdom5Rwanda67Nigeria125 Ireland7Zambia90Morocco128 Thailand12Kenya95Lesotho130 Mauritius17Egypt106Gambia140 Korea, Rep. of19Ethiopia107Cape Verde146 World Average92Regional Average118Regional Average World Bank’s Doing Business Report assesses the conduciveness of regulatory environments to the operation of a business, based on 10 criteria, including the ease of starting a business, employing workers, getting credit, and enforcing contracts. Ease of Doing Business Rank 2010 (183 countries)

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency Your Thoughts: the Region’s Position in the Global FDI Market How do you think this is reflected in the level of FDI inflows? Is existing FDI the kind sought? If not, what kinds are sought? What factors discourage better FDI inflows? Which of these factors do you have the power to do something about on a daily basis? What is something you would like to do better in your organization? 18 In terms of the business environment, only a few countries in Eastern and Southern Africa do better than the global average.

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 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! 19 Facilitation - information, information, information

THE WORLD BANK World Bank Group Multilateral Investment Guarantee Agency 20 Thank you. Questions