Foreign direct investment (FDI) plays an invaluable role in driving economic growth for countries around the world. Numerous literature speaks about the many ways in which FDI helps economies in terms of finding solutions to capital shortages, improving infrastructure, and creating job opportunities.

However, not all FDI is equal. Low-quality investments, such as those that prioritize labor-intensive industries or solely focus on short-term gains, can have limited economic benefits in the long run. On the other hand, high-quality FDI that aligns with national development strategies is instrumental in achieving sustainable growth for many years to come.

Identify investment-worthy sectors

Attracting meaningful investments requires a long-term perspective that only envisions added-value activities like technology and knowledge transfer, research and development, and innovation. Sectors that have the potential to offer these should receive more investments. Renewable energy, advanced manufacturing, and digital technologies, for instance, not only drive economic growth but improve people’s quality of life as well. Focusing on these sectors will enable countries to entice investments that have a positive impact both on the economy and the society.

The US-based think tank World Resources Institute, in its “The Green Jobs Advantage: How Climate-Friendly Investments are Better Job Creators” report, said that “green investments can be an important part of recovery packages, lead to job creation and positive economic outcomes, and help address climate change.” It found that investing $1 million in green initiatives can create more immediate job opportunities compared to investing the same amount in unsustainable projects, and sometimes significantly more.

Commit to good governance

Another important factor in attracting high-quality FDI is creating an environment that encourages businesses to thrive. This means developing a regulatory framework that is transparent, predictable, and fair. Investors need to feel confident that they can operate without unnecessary interference. Countries that prioritize good governance, transparency, and a stable business environment are more likely to attract high-quality investments.

“A good corporate governance system is one of the most important factors in creating a good, correct, and effective investment environment. The purpose of corporate governance is to provide investors with the information they need and a strong communication system that works effectively and efficiently,” noted the report titled “Examining the Impact of Corporate Governance on Investors and Investee Companies: Evidence from Yemen” published early this year.

Protect intellectual property rights

Investors need to know that their intellectual property will be protected and that they will be able to recoup their investment, which is why safeguarding intellectual property rights is also vital in attracting high-quality FDI. Countries that have strong intellectual property protection laws are more likely to attract high-quality investments.

According to the European Commission, “Intellectual property rights play an important role in promoting innovation and protecting investment, in particular in the digital and green economy… A reliable intellectual property framework is the best way to harness creativity and enable innovative enterprises to grow. Without the protection of ideas, businesses and individuals would not reap the full benefits of their inventions or creations, and would focus less on research and development.”

Highlight strengths

Leveraging existing strengths and competitive advantages is another way to attract high-quality foreign direct investment. For example, a country with a skilled workforce and strong R&D capabilities may be particularly attractive to investors in the technology sector. By highlighting these strengths and promoting them to potential investors, countries can attract high-quality investments that can have a positive impact on the economy and society.

In summary, attracting high-quality FDI is not just about increasing the number of investments, but also about ensuring that the investments contribute to sustainable economic growth and development. Countries need to focus on promoting investments that can make a meaningful impact both on their economies and societies.

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