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THINKTANK


RESEARCH


Green effort: sustainable investment is one possible route back to growth after the pandemic


host country government entities and foreign investors, to arrive at mutually satisfactory, and hence more stable, contracts; and • for host and home countries to work together on a multilateral investment facilitation framework, to encourage not only more FDI but more sustainable FDI.


Investment promotion agencies


(IPAs) have a role to play in each of these policy areas.


Fostering linkages Backward linkages between foreign affiliates and domestic firms are one of the most effective avenues through which domestic firms can benefit from the tangible and intan- gible assets of foreign affiliates. A fewcountries have established link- age programmes through which governments support the upgrading of domestic firms to make them ‘linkage-ready’, i.e. help them reach the standards that international investors expect fromtheir suppli- ers to supply them with the quantity


and quality of goods and services they need. Strengthening and deep- ening linkages is a win-win proposi- tion for foreign investors and host countries. The issue then becomes: howcan


one encourage the creation and deepening of linkages? For instance, establishing ‘Linkage Forums’ in host countries that bring together various stakeholders in public dialogues on linkage creation and deepening would be a good starting point. Governments can build and maintain databases of local enter- prises to help investors identify potential subcontractors and ensure that enterprises in the databases are linkage-ready through a certifica- tion step, so that the databases are trusted and used. Special incentives could be given to foreign affiliates seeking to enhance their sustainabil- ity characteristics. IPAs in developed countries (which increasingly also support outward FDI) could assist IPAs in developing countries in developing linkage programmes, with funds made available in the


August/September 2021 www.fDiIntelligence.com


context of official development assistance, to help their own outward investors. There are many other actions


host countries can take to help foreign affiliates source locally and, in the process, advance the develop- ment of their economies.


Supporting contract negotiations Investment contracts between host country governments and foreign investors typically govern the explo- ration and exploitation of minerals and oil, the development of infra- structure and the acquisition of agricultural land. Such contracts are necessary, as natural resources are generally owned by the state, and infrastructure often requires the taking of land or the granting of monopolies. As the demand for raw materials (as part of the post- pandemic recovery) rises, investors seek to acquire land for food produc- tion and the substantial need for infrastructure in developing coun- tries is being addressed, getting these contracts right will become


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