The Marketing Strategy For FDI In East Africa In The Light of Regional Integration
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I acknowledge with gratitude the support from the Executive Director and
Management of Uganda Investment Authority who recommended me for
the course and gave me time off when I needed to study
I sincerely want to thank all those public and private sector individuals who
took off the time to provide me with information for this research.
Prof. Robert Raeside, thank you for pointing me in the right direction in the
initial stages of this research.
I will be forever indebted to Prof. George Malcotsis for his encouragement
to me throughout the course and the dissertation preparation
I am extremely grateful for the patient guidance from my supervisor that has
enabled me to complete the study. Prof. John Adams, thank you very much.
This study and my participation in the entire course were made possible by
sponsorship from WAIPA. I am indeed grateful.
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1
By
Sheila K Mugyenzi
September 2010
Thesis Submitted in Partial Fulfillment of
the Degree of Master of Science in
Investment Promotion and Economic
Development
A Study Of The Marketing Strategy For FDI In East
Africa In The Light of Regional Integration
2
Acknowledgment
I acknowledge with gratitude the support from the Executive Director and
Management of Uganda Investment Authority who recommended me for
the course and gave me time off when I needed to study
I sincerely want to thank all those public and private sector individuals who
took off the time to provide me with information for this research.
Prof. Robert Raeside, thank you for pointing me in the right direction in the
initial stages of this research.
I will be forever indebted to Prof. George Malcotsis for his encouragement
to me throughout the course and the dissertation preparation
I am extremely grateful for the patient guidance from my supervisor that has
enabled me to complete the study. Prof. John Adams, thank you very much.
This study and my participation in the entire course were made possible by
sponsorship from WAIPA. I am indeed grateful.
From the bottom of my heart, I thank my husband and my family for the
invaluable support they gave me during the study
To God, I am eternally grateful
3
ABBREVIATIONS
COMESA
EAC
EAAIPA
EABC
Common Market for Eastern and Southern Africa
East African Community
East African Association of Investment Promotion
Agencies
East African Business Council
EU
FDI
FTA
IGAD
IPA
REC
SADC
SME
TNCs
UIA
UNCTAD
UNIDO
WB
MIGA
European Union
Foreign Direct Investment
Free Trade Area
Inter Governmental Authority on Development
Investment Promotion Agency
Regional Economic Community
South African Development Community
Small and Medium Enterprises
Trans National Companies
Uganda Investment Authority
United Nations Conference on Trade and Development
United Nations Industrial Development Organization
World Bank
Multilateral Investment Guarantee Agency
4
Abstract
This study analyses the effectiveness of the investment promotion strategy
in the East African Community (EAC) as well as the effects of integration on
the marketing strategy. It seeks to determine whether there is a strategic
marketing strategy in place to promote the EAC as a bloc and its
effectiveness as opposed to individual country marketing.
Following a literature review on the subject and a survey that was carried
out via questionnaires among the EAC business community, as well as
public and private investment related officials, the study concluded that
there is a „loose‟ mechanism in place to market the EAC as a bloc. There is
an effective marketing strategy on paper that cannot be implemented due to
lack of prioritizing community funding to this venture. However, even with
an effective strategy in place, the underlying challenge that needs to be
addressed for the strategy to bear fruit is the development of infrastructure.
The findings from the literature review concluded that marketing a regional
economic community (REC) is complex since individual members are in
competition for FDI. Integrating does not necessarily make a region
competitive because FDI may not uniformly be attracted across the region,
rendering some areas in the REC more developed than others..
The survey, which largely tried to establish the effectiveness of the
marketing strategy in the region, considered the respondents opinions as
well as secondary data from reputable international sources to capture what
was taking place in reality. The findings concluded that there is a need to
urgently implement a sector based marketing strategy. Using global
examples, a sector based strategy which leads to specialization, economies
of scale and the development of clusters, will attract FDI to the EAC,
develop local investment, create jobs and ultimately, achieve the most
important goal of each of the five member states of the EAC – to eradicate
poverty and industrialize the economy.
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Table of Contents
Chapter 1: Introduction.................................................................................... 6
Significance of Research .............................................................................. 10
Aims and Objectives.................................................................................. 12
Chapter 2: The Theoretical and Empirical Background of Economic
Integration and its Impact on FDI Attraction and Competition...................... 13
Definition of Competitiveness ........................................................................ 15
Strategic Marketing ................................................................................... 22
Chapter 3: Research Methods and
Methodology…………………………………………………………………………….28
Analysis Procedure……..………………………………………………………....…..31
Chapter 4: Presentation of Survey Findings…………………...…………….…...32
Chapter 5: Discussion on the Findings ………………………………………...…44
Status of Investment Promotion ……………………………………………………..45
Strategic Plan for Investment Promotion ……….………………………………..50
Conclusions …………………….…………………………………………………54
Limitations of Research ………………………………………………………54
Further Areas for Research .……………………………………………….55
Appendices
Bibliography ……………………………………………………………………………..56
List of Tables, Graphs and Charts …….………………………………………………61
Questionnaire …………………………………………………………………………...63
Interview Code Descriptions …………………………………………………………..71
Declaration ………………………………………………………………………………74
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Chapter 1 – Introduction
1.1: Background to the Research
The „Joint Export and Investment Promotion Strategies for the East African
Community 2006 – 2010‟ published in July 2006, (pg 27) details that “IPAs
have been undertaking foreign based investment promotion activities to
attract investors to their respective countries. While the process should
continue, an effort could be made to bring in the regional perspective so
that where one country is doing its normal foreign promotion campaign; it
can also market the opportunities of the other member states”. This
research intends to identify strategic viable opportunities for this purpose.
An observation of the FDI trends from data provided by UNCTAD shows
varying levels of FDI inflows. However, this may not be attributed only to
integration effects because there are other underlying economic, political
and social effects. Published researches and academic paper presentations
highlighting integration experiences in Europe will be studied to provide
more input into effective strategies to increase FDI inflow.
The table below gives an overview on the FDI trends in the last four years
from 2006 to 2009. Averages are detailed since 1995-2005 (the years when
the integration process was revived)
Table1: FDI overview in the EAC
FOREIGN DIRECT INVESTMENT OVERVIEW (1995 - 2009) in Millions of dollars
COUNTRY / REGION
1995-2005 (annual average)
2006
2007
2008
2009
East Africa
978
2,643
4,030 3,814 2,938
Kenya
38
51
729
96
141
Uganda
179
644
733
787
799
Tanzania
309
597
647
679
645
Rwanda
7
31
82
103
119
Burundi
1
0
1
14
10
Source: UNCTAD World Investment Report (2010)
7
Graph 1: EAC Foreign Direct Investment Trends
Graph derived from Table 1
Petersheim (2009) gives an invaluable insight into the economic integration
dynamics and the effects. The recent Economic Partnership Agreements
(EPAs) negotiations and outcomes are proof that emerging markets in
Africa are becoming increasingly important economically and politically to
the international FDI market. Velde and Bezemer (2004) examined the
relationship between regional integration and FDI in developing countries
and concluded that there is a growing consensus that regional integration
leads to further FDI, however, empirical literature seems to offer little
guidance on whether different regions are more successful in attracting FDI
and the reasons for the success. This research aims to suggest that laying
emphasis on particular sectors basing on the comparative advantages
within the member states is crucial for the success of FDI attraction. In
relation to this, trade trends in the EAC seem to be on the increase since
the establishment of the Customs Union in the community. Trade in EA has
grown by 20% since the commencement of the Customs Union in January
2005 (The New Vision)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
East Africa
1995-2005 (annual
average)
2006
2007
2008
2009
8
Graph 2: EAC Member States Performance in Attracting FDI
Derived from Table 1
According to Brenton et al (1999:95), cited in Kubny, Molders, and
Nunnenkamp (2008), “recent evidence suggests that regional economic
integration provides an important stimulus not only to trade, but also to
FDI”. „However‟ states Kubny et al, „it also appears that high expectations
have often not been met‟. Ye Yati et al (2003) puts forward the argument
that “most probably, both FDI and the Regional Integration Agreements
(RIAs) are too diverse to allow for generalized verdicts regarding the effects
of RIAs on FDI inflows to member states”. The paper concludes that the
country specifics as opposed to regional attributes play a big role in
attracting investment. It is therefore important to focus on what the
individual countries have to offer and amalgamate the strengths to deliver
sellable opportunities. Ye Yati et al (2003) strongly suggest that „the effects
on FDI between member countries will clearly depend on the nature of FDI‟.
It is imperative therefore for the EAC region to determine what kind of FDI
enhances its mission to improve the quality of the citizens‟ lives through
increased competitiveness, value added production, trade and investment.
FDI which creates significant levels of employment and adds value to the
0
1000
2000
3000
4000
5000
East Africa
Kenya
Uganda
Tanzania
Rwanda
Burundi
2009
2008
2007
2006
1995-2005 (annual
average)
9
natural resources is critical. This forms the basis for the intention of the
research to focus on the marketing of strategically determined sectors.
Ye Yati et al (2003) pursues the issue of national interests regarding
regional investment promotion.
„The case for aggressive competition in incentives is not as clear as the
availability of cheap labour. It makes sense for governments to offer
incentives to potential investors in order to lure them into their territory.
Provided there are economies of scale, eliminating trade barriers will
induce firms to produce in just one location within the bloc and serve
the extended market from the location‟
The research to be undertaken aims to establish which investments are
better suited to particular locations within the region and which will at the
same time support mutual benefit between the countries involved i.e.
balanced economic growth and development.
According to Bloomstrom and Kokko (1997) most researches in the area of
regional integration and FDI have focused on the impact of the RIAs and
FDI flows. In the conclusion of their paper, they suggest “further research to
consider welfare effects in closer detail and to also take into account factors
that determine production location [e.g. natural resource endowment] rather
than ownership issues alone”. They also state that “regarding the empirical
cases, the discussion has focused on entire countries, [while] individual
sectors and industries have seldom been addressed….more detailed
sectoral studies are clearly called for”. It is on this basis that this research is
proposed. Brainard (1993) cited in Tayyebi and Hortamani advances a
different argument that “multinational activity is driven not by factor
endowment differences, but by a trade off between proximity and
concentration advantages”. It is earlier approaches (Helpman, 1984,
Helpman and Krugman, 1985), also cited in the same report, „who sought to
explain the presence of MNCs as the result of differences in factor
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endowment‟. The proposed research hopes to establish that the two
approaches can be used to lay successful strategies to take advantage of
the integration processes to attract „quality‟ FDI; FDI that enhances the
objectives of the integration.
1.2: Significance of the Research
The EAC is composed of five (5) countries; Uganda, Kenya, Tanzania,
Rwanda and Burundi. The countries are small and unattractive markets on
their own. Investors need, among other things; a significant market,
sizeable trained or trainable labour, and infrastructure that promote viable
investment. The answer to East Africa‟s problem was regional integration
for a bigger market and more resources.
Each member state in the EAC has an Investment Promotion Agency (IPA)
mandated to promote, facilitate, and monitor FDI in their respective
countries. As the EAC progresses into various stages of integration, the
challenge weighs very heavily on the national IPAs to attract investment to
both their country and the region. In the face of competition for FDI, the
practicality of pulling resources to promote the EAC bloc is difficult. Recent
FDI trends from individual IPA and UNCTAD reports seem to indicate that
companies locate investment due to first national rather than regional
considerations. The research seeks to establish a „middle‟ approach for
successful attraction of FDI. It is hoped that the approach may suggest a
solution to the increasingly aggressive competition for FDI among the
member states in similar sectors and incentive regimes.
The EAC Secretariat has developed a „Draft Roadmap towards Effective
Promotion of Investments in the EAC (February 2008)‟, in which it
emphasizes a focused approach on identified sectors of the regional
economy to act as selected pillars of growth (pg 6). It states that „the
immediate challenge to be overcome is the preparation of well packaged
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and sellable investment proposals, particularly focusing on regional
projects‟. Nine sectors that should be prioritized and packaged into
investment proposals have been identified. However, the draft highlights the
key challenges to concretize the proposals, as “mobilization of financial
resources for packaging the projects and securing of consensus of the
partner states on determining the priority sectors of regional character for
which investment promotion will be focused upon”. The research will focus
on two sectors; agri business and tourism due to their wide coverage in the
region that would support the formation of clusters and promote value
addition projects, which is in tandem with the mission of the EAC – „to
widen and deepen economic, political, social, and cultural integration in
order to improve the quality of life of the people of East Africa (EA) through
increased competitiveness, value added production, trade, and investment”.
This research sets out to establish which sectors can be marketed as a
regional product, as well as the challenges and effects of economic
integration on the efforts to attract FDI and FDI inflows.
The outcomes of the research, which are hoped to be suggested
improvements in the marketing strategy of EA and viable investment
proposals in two strategic regional sectors, will be shared voluntarily with
the EAC Secretariat and the member state IPAs in a bid to provide a
starting point for the development of sellable regional sectoral investment
profiles at no cost. Further research into the topic at a later stage, will assist
the regional institutions (EABC, EAC Legislative Assembly, EAAIPA, and
the Ministry of Finance officials in each of the member states, in adopting a
meaningful regional marketing strategy, as well as focusing on the
development of sectors in which the individual countries have a
comparative advantage. The sectoral emphasis would under pin the
national marketing strategies.
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1.3: Overall Aim and Objectives of the Study
1.3.1: Aim
The research aims to introduce a marketing strategy for FDI attraction to
the EAC region based on sectors to provide for equitable economic
development across the region
1.3.2: Objectives
Analyze the effectiveness of the current marketing strategy for
attraction of FDI to the EAC in the light of regional integration
Identify strategic sectors within the EAC region that can be packaged
for promotion to the FDI market in order for the investments to
support balanced economic growth and development among the
member states even as the region integrates.
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Chapter 2 – FDI Competitiveness of National Regions: The
Theoretical and Empirical Background of Economic
Integration and its Impact on FDI Attraction and Competition
2.1: Introduction
According to Tussie & Cohen (Biersteker, 1998) cited by Julef Linda (2009),
„market forces are driving new arrangements and creating new forms of
competition among States. One of the ways in which States can improve
their informal „bargaining power‟ is to consolidate their regional
arrangements.‟
Feils and Rahman (2006) carried out a study to examine the impact of
regional integration of the three NAFTA countries (Canada, Mexico, and
USA) on inward FDI for the entire region as well as for each member state.
They examined the annual change in inward FDI stock between 1981 and
2001 (20 year period), by using cross sectional time series regression
models to test their hypothesis. In my opinion, their scope of study and
thorough method of analysis yielded dependable results that agree with
Ethier (1998), cited in the introduction of their paper (Regional Economic
Integration and Foreign Direct investment: The Case of NAFTA), who
submits that „Countries compete for FDI, and regional economic integration
may provide them with additional location-specific advantages that serve to
attract it. However, not all countries in the integrated region may benefit to
the same degree (Dunning 1997, Either 1998). Feils and Rahman (2006)
conclude that „in fact some countries may lose FDI to other partner
countries in the regional integration pact‟. This is the basis for this research
into the economic integration of the East African Community (Uganda,
Kenya, Tanzania, Rwanda and Burundi), the impact on competition for FDI
and the marketing strategy to realistically sell the region.
14
Nations within a region may be equally endowed with natural resources but
some may lack the competitive advantage to harness them. Comparative
advantage does not necessarily attract FDI unless the country has been
able to exploit them. Cho and Moon (2000) made a fundamental statement
which they concluded from their study of Michael Porter‟s „diamond model‟
explaining Competitiveness Theory. They assert that, „national wealth is not
set by factor endowments, but created by strategic choices’. This is the
conclusion that underpins this research into the EAC‟s competitiveness and
how it can be strategically exploited to enhance balanced regional
development.
2.2: Regional Competitiveness
Joong-Wan Cho
1
, in a paper titled „FDI: Determinants, trends in Flows and
Promotion Policies‟, while concluding on the implications for regional action
and cooperation, states that „concerns have arisen that competition to
attract FDI will intensify among member countries, especially the type of
FDI that bring major benefits to recipient economies by enhancing their
export competitiveness or by providing linkages with domestic enterprises‟.
Each of the member countries in the EAC has a National Development Plan
in place according to their levels of development. The IPAs will target FDI
that aligns with the national strategy for economic development. Though at
different levels of development, all the member states are LDCs in dire
need of FDI to boost industrialization and create employment. This leads to
intense competition among member states of a region which should be
cooperating to market the region for investment. However, Blomstrom and
Kokko (1997), concluded from their research on Regional Integration and
FDI, that „the most positive impact on FDI has occurred when regional
1
Economic Affairs Officer, Investment and Enterprise Development Section, Trade and
INVESTMENT Division, Economic and Social Commission for Asia and the Pacific
15
integration agreements have coincided with domestic liberalization and
macroeconomic stabilization in the member countries‟.
2.2.1: Definition of Region
According to Boudevill (in Vanhove, 1999), there are two types of region:
Uniform or homogenous regions and Nodal or polarized regions. The
former are identified on the base of certain common characteristics e.g.
physical, economic or social. The later are identified by not so much the
similarities between places but rather by the interaction and dependence
between big and small places (sometimes called poles). The economic
interaction in the East African Community (EAC) exhibits both types of
interaction. At all the borders between the EAC countries, the member
states share similar ethnic groups of people, physical features i.e.
mountains, lakes, and unique animals e.g. the mountain gorilla found in
South western Uganda, eastern Rwanda, and North DR Congo. The
economies of the member states are intertwined due to their locations.
Uganda, Rwanda, and Burundi are landlocked. Economic activity in their
urban areas and cities depends on access to external markets through
Kenya to and from the port of Mombasa, as well as Tanzania, to and from
the ports of Zanzibar and Dar-es-salaam.
2.2.2: Definition of Competitiveness
According to Prof. Garelli (2008), Competitiveness is how a nation (region)
manages the totality of its resources and competencies to increase the
prosperity of its people.
Feurer and Chaharbaghi (1994) define competitiveness as „being relative
not absolute ….. Competitiveness can only be sustained if an appropriate
16
balance is maintained between these factors which can be of a limiting
nature‟.
Iryna Brykova (2007) submits that „competitive advantages are the
underlying basis for competitiveness of any economic player‟. In her study,
which is a an extensive and thorough analysis of the theoretical foundations
of regional competitiveness, she identifies the key determinants that ensure
the international competitiveness of national regions to include: clusters;
human assets; enterprises and degree of development of local networks;
innovations and regional innovative systems; quality of administration and
institutional structure of a region; industrial structure (type) of a region;
regional infrastructure; investment attractiveness and nature of FDI in a
region. Brykova concludes that the determination of the factors of local
dynamics is the underlying basis for the design of an effective strategy of
enhancing a regions‟s competitiveness. She proposes the creation of a
„Regional Competitiveness Hat „, as proposed by the experts of European
Commission. The cylinder, with several layers indicates that the „formation
of regional competitiveness is dynamic and evolutionary; not a static
process‟. During this research, the cylinder was found „to be practical value
to identify factors of regional competitiveness, adequate manufacturing
specialization, and level of development, thereby serving as a theoretical
foundation for designing government strategies of building up the
competitiveness of national regions‟. It was proposed for the Ukraine, and it
is the considered view of this researcher that the same cylinder can be
effectively applied in the research at hand to establish practical strategies of
enhancing the EAC‟s competitiveness.
2.3: Economic Integration and Effect of FDI
Most of the studies on regional economic integration and its effect on FDI
lay emphasis on the level of development of the member states and the
17
similarity of their resource endowments, i.e. comparative advantage. Feils
and Rahman (2006) examined the impact of NAFTA on FDI into the region
and on the individual member countries. The results of their study showed
that “the differentials in the location specific advantages (lower production
costs, general education, quality of labour, infrastructure etc of each country
may very well affect the distribution of FDI among member states”
Yeyati, Stein, Daude (2006), paper on „the FTAA and the Location of FDI‟,
used the gravity model
2
by inputting data on bilateral FDI stocks from
OECD International Direct Investment Statistics. The data range covered
FDI from 20 source (OECD) countries to 60 host countries, from 1982 to
1999 (17 years). Despite the fact that the study did not cover developing
countries, the conclusions from the study depict the current situation in the
EAC. Yeyati et al (2006), pg 19, „the FDI gains of RIAs are unlikely to be
distributed evenly, and the gains may be smaller for countries that have
factor endowments similar to those of the source countries and are
relatively closed to international trade‟.
When trade barriers are eliminated, firms will be induced to make strategic
choices, which may entail locating production in one area within the bloc
and serve the extended market from the location. Yeyati et al (2006) says,
competition among countries for FDI may become intense and suggests
that members of RIAs may benefit from coordinating their incentive
schemes. This is a fallacy because, a member country will not be attractive
to FDI or competitive if its systems are not in place to harness the resource
endowments and factors of production however much the incentive regime
is in line with the region. A holistic approach to ensuring attraction for FDI is
vital. It is this approach, that the research seeks to establish by studying the
current investment promotion strategy(ies) in place and whether they are
2
The gravity model presumes that bilateral FDI stocks are related positively to the product
of the GDPs of the economies and negatively to the distance between them. Other
variables typically added are whether the countries have a common border, common
language, colonial link, etc
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strategic in wooing the right FDI and spread relatively evenly throughout the
East African Community region.
Yeyati, etal (2002) cited in Yeyati et al (2006) state that „countries that
present a more attractive overall package to foreign investors are likely to
gain more FDI from the formation of RIAs. This begs the question of how to
make a country attractive to foreign investors‟. The core question of the
research at hand, is how to make the EAC attractive to FDI.
2.4: Attracting FDI – Competitiveness and Investment Promotion
According to Jinkang Zhang (2005), „the factors that create the investment
climate in one country and determine its attractiveness for FDI are
numerous and complex. There are large number of literatures examining
the determinants and constraints of FDI inflows [and these include]
country‟s political and economic stability, geographic location, market size,
membership and status in regional integration, legislation, infrastructure and
telecommunications, availability of skilled labour, fiscal incentives, and FDI
promotion.
Information is a key element in influencing the location decision of a
company. Information will most usually be sought from internationally
reputed sources like the World Bank, etc. The table below shows the global
ranking of doing business for each member state of the EAC. An annual
ranking carried out by the World Bank.
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Table 2: Doing Business Ranking
Economy
Ease of
Doing
Business
Rank
Starting a
Business
Dealing with
Construction
Permits
Employing
Workers
Register
Property
Getting
Credit
Protecting
Investors
Paying
Taxes
Trading
Across
Borders
Enforcing
Contracts
Close
Project
Rwanda
67
11
90
30
38
61
27
59
170
40
183
Kenya
95
124
34
78
125
4
93
164
147
126
79
Uganda
112
129
84
7
149
113
132
66
145
116
53
Tanzania
131
120
178
131
145
87
93
120
108
31
113
Burundi
176
130
172
88
118
167
154
116
175
172
183
With the coming into force of the Common Market, it is expected that there
will be an increase in the ease of doing business and the laws governing
business, as well as incentives will be harmonized. This will make the EAC
more competitive and attractive for more FDI.
Table 3: The 2010 Index of Economic Freedom
Source: 2010 Index of Economic Freedom
J. Zhang (2005) concludes that „there is no simple „one for all‟ and „one for
always‟ policy framework for every developing country, which has different
20
comparative advantage and in a different stage of development‟. A strategy
is therefore needed for this complex situation. Zhang suggests, and I agree,
that a „targeted investment promotion strategy can play a powerful
economic development role as it influences not only the attractiveness of a
location for inward investment, but also the benefits accruing to the local
economy‟. Zhang‟s paper lays emphasis on attracting the „right FDI‟ as
opposed to the current practice of generic investment promotion using the
argument that the EAC economies are developing and can therefore not
afford to focus on some sectors at the expense of the others.
Most governments depend on Investment Promotion Agencies to compete
globally for critical foreign investment and the development benefits it brings
(Investment Climate IN PRACTICE series, No. 6, Investment Policy and
Promotion, Pg 1). In the EAC, each of the five member countries has an
IPA with the mandate of promoting, facilitating and monitoring investment in
the country. In 2000, the IPAs came together to form the East African
Association of Investment Promotion Agencies (EAAIPA).
Dr. Valerie Engammare (2009) says „several countries within a region may
also join forces to attract investment. However, such cooperation may be
limited in scope to information exchanges or joint training or joint promotion
activities‟. There is also the unavoidable risk of „counterproductive
competition‟ as the individual IPAs struggle to find the right balance
between regionally coordinated promotion strategies that are in sync with
the national strategy, and competition for FDI to their countries. Clearly
there is a need to establish a realistic promotion strategy that benefits the
regional members equitably.
The „Draft Roadmap towards Effective Promotion of Investments in the
EAC‟ (2008), Page 3, paints the scenario for a more focused and intensive
promotion for FDI that will achieve the goals of regional integration and
development, by stating
21
„Competition for investment resources is highly intense as there
are over 170 IPAs worldwide going for the same resources while
Africa receives about 2% of all FDI inflows. Competition among
sub Saharan African countries to attract FDI has degenerated into
incentive based rivalries that have not been well calibrated.
Hence, in many cases unwieldy competition has resulted in the
attraction of investments whose impact on the economies has at
best been marginal.‟
As the region seeks to integrate deeper, and as the IPAs seek to coordinate
promotional activities, it is difficult to measure the impact of the current
regionally coordinated promotional efforts in the EAC. Dr. V. Engammare,
continues to explore this gap that would enable one to evaluate the
effectiveness of such efforts, by stating that „little empirical research has
been done on the concrete impact of IPAs in the attraction of FDI …. The
decision to invest results from a whole range of factors, and the IPA may be
one factor among the many‟.
Information is a major factor which plays a vital role in the decision of a
potential investor to invest in a location. IPAs are aware of the need to
provide comprehensive up to date information on the location and its
business opportunities. For this to be valuable there is a need to prioritize:
1. Research
2. Develop products
3. Carry out Investor Targeting
Nations within a region, like the EAC may be endowed with natural
resources and each may have a comparative advantage in a particular
sector. However, the comparative advantage will not necessarily attract the
much needed FDI unless the resources are exploited in a way that
produces the desired end results (FDI, employment, economic growth and
development). In order to exploit the resources for regional benefit,
22
specialization of industry and human resource would need to be borne out
of research; Regional projects would have to be developed; and the
regional coordinated investment promotion activities would need to take on
a sectoral focus and carry out investor targeting.
2.5: Strategic Marketing
J. Zhang (2005) asserts that „[marketing] strategies are evolving against the
back ground of a changing global environment for FDI, including increasing
competition for FDI. More and more countries are adapting a focused
approach to investment promotion……. The goal is to attract FDI that
maximizes the advantages of a given location and contributes to the
carefully defined development objectives (WIR 2002).‟ The EAC is still in
the process of establishing the sectors that can do this effectively, hence
this research.
In the same paper, Targeted Foreign Direct Investment Promotion
Strategy‟, Zhang (2005) argues that „competitive positioning and
sector/activity/region targeting is a complex process and requires: a
detailed knowledge of industry sector and trends, cluster development, FDI
trends, company strategy, typical projects requirements and parameters
and best practice IPA activities.‟ This reiterates the need for research,
product development and investor targeting – areas which are not given
budgetary priority in most [if not all] of the EAC member states.
Zhang‟s study concludes that an integrated promotion approach to
marketing is important - One that combines marketing, company targeting
and product development. For this to take place, Zhang suggests that IPAs
need to be sufficiently independent from government, giving the agency
greater credibility with investors and flexibility. They need a significant
degree of autonomy and sufficient resources to achieve results in a
competitive, commercial environment. At the same time IPAs need
23
excellent links with government and the private sector and a direct influence
on policy. In the context of the EAC, the integrated promotion approach
would need to be explored under different circumstances. All the IPAs are
under either the Ministry of Finance, Trade, or Foreign Affairs. Currently,
the situation of autonomy is not foreseen in the near future.
Once a realistic marketing strategy is in place, the individual member states
within the region would do well to commit to it by empowering their IPAs
financially and politically, as well providing an enabling business
environment that backs the promotional efforts of the IPAs. D.J. Feils and
M. Rahman (2007) assert that „Nations that are interested in attracting FDI
need to focus on improving their location-specific advantages with respect
to the FDI motivations of MNCs.‟ The improvement of the regulatory
climate, investor targeting and product development are bound to increase
FDI inflows. However, caution should be taken to attract quality FDI i.e. FDI
that creates the required jobs, exploits the resources in a sustainable
manner, and processes them to earn the country reasonable value. In
today‟s highly competitive globalised economy, the IPAs need a saleable
product.
2.5.1: Product Development
„In developing a well – considered list of priority sectors, IPAs need to
determine what the country [region] has to offer new foreign companies and
the benefits the country hopes to realize from their investments‟. Investment
Climate in Practice, No. 6, (Sept 2009). The EAC Secretariat has put
together a strategy for investment promotion and identifying priority
cooperation sectors for joint promotion. However, there are no well
structured sectoral proposals for joint promotion. This is only realistic if the
benefits of the projects are going to be experienced in a regionally balanced
manner. However, identifying the products and marketing is important but
24
this alone may not bring in the FDI if the regional regulatory climate
concerning investment i.e trade, investment, and labour policies, are not
harmonized. Porter (2008) advises that in addition to this „a trade and
infrastructure strategy needs to be established between neighbouring
trading partners, as proximity and similarity of needs are crucial to
expanding and accessing regional markets‟. Cho offers that clusters will
achieve this end – countries that want to attract high quality FDI and benefit
from it need to develop differentiated and efficient clusters that offer real
and identifiable locational advantages to international investors and
eventually become brand names recognizable to any national or
international investor seeking this particular configuration of advantages
e.g. Banaglore in india has such a brand name for the development of
software‟. Caution is also given that the „development of a locational brand
name is difficult, costly and takes time‟.
Some of the member states have gone ahead and pursued national brands.
Those that have not are in the early stages of developing one. Combining
these to get a regional brand is ideal, but will take time. In the interim, the
region should focus on what it has to offer and create investment
opportunities out of it as well a conducive environment for the potential
investors to take advantage of the opportunity. Michael Porter, a renowned
economist, who has already been quoted in this text, has advanced some
business strategies that have been argued to make both businesses and
the host location competitive.
2.5.2: Cluster Development
The term industry cluster, also known as a business cluster, competitive
cluster, or Porterian cluster, was introduced and the term popularized
Michael Porter in The Competitive Advantage of Nations (1990)
(Wikipedia).
25
A cluster is a geographic concentration of businesses, organizations, and
institutions that are interrelated in a particular field. They share common
interests and in many ways complement each other.
I.Brykova (2007) cites Michael Porter‟s submission that „a country (region)
gains substantial benefits when it concentrates resources at the most
efficient enterprises (requiring the cheapest factors of production) and
exports its products to the world markets‟. Other economists agree but
caution that this development could bring about unbalanced economic
development, with some countries attracting more FDI than others.
Blomstrom and Kokko (1997) „investment can be expected to cluster to
those parts of the integrated region where the investment environment is
most favourable, and some countries may therefore be left with less FDI
than before‟. This is a situation the EAC needs to guard against even as the
region makes the conscious effort to develop clusters that increase the
competitiveness of companies and the location.
2.5.3: Value Added Products and Value Chains
Developing a regional product for investment based on the comparative and
competitive advantages beyond national borders can be quite a challenge.
The investment in a product, its production, and distribution, should be in
line with the economic development plans of the country /ies and be viable
for the investor. The bottom reason for any investor to locate is to maximize
profits. The EAC therefore needs to come up with projects that can satisfy
both needs. Michael Porter‟s Value Chain Analysis provides a strategy
through which this can be done.
The term „Value Chain‟ was used by Michael Porter in his book
“Competitive Advantage: Creating and Sustaining Superior Performance,”
Recklies (2001). Recklies defines the Value Chain Analysis strategy as „the
activities within and around an organization, and relates them to an analysis
26
of the competitive strength of the organization…….Porter argues that the
ability to perform particular activities and manage the linkage between
these activities is a source of competitive advantage‟. The IPAs need to
develop projects targeted to this competitive advantage. This underscores
the need to invest in R&D to identify and develop sectoral opportunities
where the region will earn higher value (value added products) and where
the investor will make the most profits.
However, this should not be done at the expense of local investment, as it
is one of the attractions of FDI. A thriving local private sector is testimony to
an enabling business climate and source of backward and forward linkages
for the MNCs when they locate.
2.6: SME Development
An argument is advanced in SOMO Paper (November 2008) that attention
should be refocused from attracting foreign investment to the promotion of
national and regional sustainable investments that achieve poverty
eradication, to assessing how sustainability and poverty eradication can be
better achieved by national or regional investment rather than foreign
investment. However, the EAC economies are still developing and cannot
afford to focus on one (indigenous private sector) at the expense of the
other (foreign private sector). This research will also look into the status and
strengthening to indigenous investment as an attraction marketing tool) to
FDI.
Joong-Wan Cho, in the paper entitled FDI: Determinants, Trends in flows
and Promotion Policies, agrees that „strong local firms attract FDI; the entry
of foreign affiliates, in turn, enhances the competitiveness and dynamism of
the domestic enterprise sector. The strongest channel for diffusing skills,
knowledge and technology from foreign affiliates is backward linkages with
local firms‟. This is the foundation for economic growth and development;
27
the major goal of economic integration. Cho also contends that „regardless
of the level at which FDI is promoted, the competitiveness of the domestic
enterprise sector and a pool of skilled people are the keys to the product to
be marketed‟. E.L. Yeyati, E.Stein and C. Daude (2003) advance the
argument that „FDI may also generate negative spill overs. Domestic firms
may be displaced by foreign firms or may find the cost of factors of
production increasing as a result of foreign investment‟.
28
Chapter 3: Research Methods and Methodology
3.1: Introduction
This chapter describes the methods used during the study and the research
design chosen for this particular study on the marketing strategy for FDI in
the EAC region. The research shall analyze the current strategy to
determine the effectiveness of promoting the Regional Economic
Community (REC) as a bloc and the challenges therein in order to
contribute to the on-going efforts at establishing an effective promotional
strategy to attract FDI for equitable economic growth across the region.
The study shall also seek to identify the strategic sector within the EAC
region that can be packaged for promotion to the FDI markets.
The primary data collected through a survey carried out with the business
community, EAC and IPA officials, as well as both private and public trade
and investment officials, will be used to analyze the „real‟ effectiveness of
the current investment promotion activities undertaken to market the EAC
as a bloc. The analysis will pave the way for the recommendation / s of a
strategic marketing plan. The recommendation / s will be supported by
empirical evidence.
3.2: Research Design and Data Collection
The research was more of qualitative. Information was gathered from
primary and secondary data. Two methods were used:
1. Desk based data collection from on-line published researches on
regional integration and FDI; East African Newspapers (East African
Business Week) and The East African; Authoritative reports on
RECs and FDI i.e. World Investment Reports by UNCTAD and the
29
World Bank; and EAC and East African Business Council (EABC)
reports
2. Primary data was collected through questionnaires administered to a
survey group of eighty (80) individuals. The questionnaire, which is
available in Appendix 1, was set according to the aims and
objectives of the research.
3.2.1: The Survey
The questionnaires were focused on establishing the effectiveness of the
regional investment promotion mechanism in place and the priority sectors
in order to determine the comparative advantages that the region could
capitalize on in selling the community as an investment location.
Emphasis was placed on the current strategy, as well as individual opinions
and recommendations on what should be done to boost the region‟s
competitiveness. The respondents were drawn from the heads and
investment promotion staff of the IPAs (Uganda Investment Authority,
Kenya Investment Authority, Tanzania Investment Centre, Zanzibar
Investment Promotion Agency, Rwanda Development Board, and the
Ministry of trade, Industry and Tourism of Burundi), the Ministries of East
African Community Affairs in Uganda and Kenya, and the business
community.
3.2.2: Sample size
The questionnaire was administered via e-mail to 30 potential respondents
and 50 were administered face to face during the 3
rd
East African
Investment Conference, the 2
nd
EU Africa Infrastructure Conference
Preparatory Workshop in September 2010, and East African private sector
business people who walked into Uganda Investment Authority (UIA) for
30
assistance. Permission was always first sought from the selected business
people and any other potential respondent. The distribution and return of
questionnaires took a period of seven (7) months, from April 2010 to
September 2010.
The aim of this kind of survey was to establish what promotional
mechanism was in place in the EAC and to capture the opinions of both
seasoned professionals in the field of investment promotion and the private
sector who experience the pros and cons of the promotional and economic
activities in the „real world‟ of business. Information on strategy together
with proposed interventions (e.g sectoral or regulatory) is useful for the
development of an effective promotional strategy. Below is a tabular
representation of the distribution of the questionnaires and the outcome.
Table 4: Tabular Representation of the Survey Population and
outcome
EIGHTY (80) QUESTIONAIRES DISTRIBUTED
CATEGORY
NUMBER
RETURNED
NO RESPONSE
Trade & Investment
Officials
30
26
4
EAC
Officials(
Secretariat
and
MEACA staff)
10
6
4
Private
Business
People
30
18
12
Business consultants
10
8
2
TOTAL
80
58
22
The questionnaire was the most suitable instrument to use in gathering the
needed information and data because the cost incurred was negligible. If
one had to travel across borders for the interviews it would have been
costly and the research did not have a big budget to expend. The
questionnaire also enabled the respondents to think through their
responses because they could fill them in at their own convenience, as
opposed to the face to face interview that sometimes does not give
31
sufficient time to the respondent to adequately put into words their idea or
response to the question put to them.
3.2.3: Analysis Procedure
According to Miles and Huberman (1994), interviews must be coded in
order to facilitate later analysis of data and ensure both accuracy and
relevancy of the analysis.
The information from the returned questionnaires was entered in epidata,
after which it was transported to Statistical Package for Social Scientists
(SPSS) for analysis. The analyzed data was then transferred to excel for
tabular and graphical representation.
Descriptive codes were developed to categorize the responses from the
open ended questions which allowed respondents to provide their own
opinions. The descriptive codes are available in Appendix 3 for clarification
on the research conclusions were arrived at.
The analytical data is presented in chapter four (4) using tables and graphs
in order to make the research findings clearer and give the reader a sense
of validity. Chapter five (5) discusses the findings, as the research gains
conclusions from both this data and the past researches summarized in
Chapter 2 (Literature Review).
32
Chapter 4: Presentation of Survey Findings
Each of the IPAs in the EAC carries out their individual investment
promotion in the bid to attract quality (job creating and technology transfer)
FDI. During the Outward Missions, which according to the survey
respondents is the most effective means of promotion, mention is made of
the EAC bloc as a viable market and region with opportunities. There is no
central promotional facility for the EAC bloc. The IPAs have formed an
association of East African Investment Promotion Agencies (EAAIPA),
whose main aim is to cooperate on promotional activities. There is no
financial commitment to fund this association since all the IPAs have barely
enough funds to fund their own activities. This makes the cooperation
„loose‟ and not as effective as the members require. An integrated strategic
promotion drive therefore, has been difficult in the light of lack of funding to
establish a focused strategy or the unique selling aspects of the region.
The survey findings, from which the statements above are attributed, are
presented in this chapter from subjects closely associated with trade and
investment activities. Eighty (80) were targeted, however 58 (72.5%)
responded.
4.1: The Survey Population
Table 5: Occupational Fields for the Respondents in the Survey
Frequency
Percent (%)
Trade and investment Official
28
48.3
East African community official
10
17.2
Private business
12
20.7
Business consultant
8
13.8
Total
58
100.0
33
Table 6: Country Representation of the Survey Respondents
KENYA
UGANDA
TANZANIA RWANDA BURUNDI TOTAL
Trade
and
Investment
Official
6
12
5¹
4
1²
28
East African
Community
Official
3
6
0
1
0
10
Private
Business
3
5
3
1
0
12
Business
Consultant
2
5
0
1
0
8
¹ Includes one official from the Zanzibar Investment Promotion Agency (Zanzibar)
² Out of the 10 questionnaires e-mailed / handed to Burundi subjects, only one was able to respond
due to language barrier (Burundi is French speaking)
Graph 3: Occupation of the Respondents
28
10
12
8
0
5
10
15
20
25
30
NUMBER OF
RESPONDENTS
Trade and investment
Official
East African community
official
Private business
Business consultant
OCCUPATION OF RESPONDENTS
34
4.2: Investment Promotion Mechanism and Integration
Most of the respondents state that there is a mechanism in place to
promote the EAC
Table 7: Status of Response as To Whether There Is an Investment
Promotion Mechanism to Promote the EAC
Frequency
Percent (%)
YES
39
66.7
NO
3
5.3
NOT SURE
8
14.0
NO RESPONSE
8
14.0
TOTAL
58
100.0
Pie Chart 1: Graphical Representation of Responses towards Existence of an EAC
Investment Promotion Mechanism
YES 67%
NO 5%
NOT SURE 14%
NO RESPONSE 14%
35
Table 8: The Effect of Regional Integration on Investment Promotion
and Competitiveness of Member States to Attract FDI to the Region
There is a mechanism for promoting
investment in EAC
YES
NO
NOT SURE
EAC will boost the
competitiveness
of member states
to attract FDI
Strongly agree
14
2
3
Agree
23
1
4
Strongly Disagree
0
0
1
Disagree
1
0
0
There is a general perception that the integration will boost the EAC‟s
competitiveness. However, most of the private sector business people were
not sure or not aware of the existence of the promotional mechanism in
place to promote the EAC, signaling that the IPAs, together with the East
African Business Council should probably broaden their reach as far as
information is concerned. Ignorance of the mechanism may also indicate
that the tools in place are not effective.
36
Table 9: Mechanism for promoting investment opportunities in EAC
The activities outlined above were the responses to question no. 13 that
required the respondent to detail the mechanism that they say was in place
by their institution / IPA in cooperation with their regional counterparts to
promote the EAC as a viable bloc for FDI . The question was only meant for
the IPA, EAC and East African Affairs public officials.
MECHANISM
Frequency Percent
Annual EAC Investment
Conference
30
51.7
Outward Missions
4
6.9
Constant Dialogue
2
3.4
EAC
Private
Sector
Involvement
4
6.9
Total
40
69.0
No Response
18
31.0
Total
58
100.0
Pie Chart 2: Representation of Responses towards the Effect of integration on EAC’s
Competitiveness and the existence of a Marketing Strategy
Strongly agree 38%
Agree 55%
Strongly Disagree 5%
Disagree 2%
37
Table 10: Success of Different Promotion Methods in Attracting FDI
Target
e-mail
Web site
Promo
Outward
Missions
Cold
Calling
% Total
Strongly agree with
the
Promotion
Method (%)
26%
29%
42%|
3%
100
Question no. 5, inquired about the proven success of the different
marketing approaches and provided for 5 responses i.e. strongly agree,
agree, strongly disagree, disagree, and not sure. The outward missions
were considered to be the most effective.
Graph 4: Representation of Successfulness of Different Marketing
Approaches
In
Attracting
FDI
26%
29%
42%
3%
Target e-mail
Website Promo
Outward Mission
Cold Calling
PROMOTION METHOD
38
Table 11: Source of FDI to Your Country
SOURCE
Frequency
Percent
United Kingdom
23
39.7
India
2
3.4
China
10
17.2
Pakistan
4
6.9
Others
5
8.6
Total
44
75.9
No Response
14
24.1
Total
58
100.0
Respondents were asked to list the top three (3) country sources of FDI to
their country. The frequency of the number one (1) country was captured as
shown in the table above. This establishes where the promotional efforts
are or should be, as well enables one to map out a targeted promotional
strategy.
4.3: Strategic Plan for Investment Promotion
Table 12: Most Viable Sector for Investment in the EAC
Frequency
Percent
ICT
16
27.6
Tourism
18
31.0
Food Processing
18
31.0
Education
3
5.2
Others
3
5.2
Total
58
100.0
39
Pie Chart 3: Representation of the Most Viable Regional Sector
Note: Others include; Financial Services, Real Estate, Floriculture, Transport and
Logistics, Mining and Oil.
Table 13: Proposed Basis for EAC Investment Promotion Strategy
SECTOR
Frequency
Percent
Sector based
27
46.6
Foreign country Target
10
17.2
Mix of Sector and Country
21
36.2
Total
58
100.0
A sector based promotional strategy was perceived to be the most strategic
to attract FDI
40
Pie Chart 4: Representation of Table Above
Respondents were asked in Question 6 to give reasons as to why they
proposed the above basis for an investment promotion strategy. Their
responses are tabulated in the following table.
Table 14: Explanation for Preferred Basis of Investment Promotional
Strategy
Frequency
Percent
Existing foreign Markets
10
17.2
Regional growth from Sector grow
13
22.4
Viable sectors attract Investors
23
39.7
Double maximization of benefits from mixed strategy 10
17.2
No explanation
2
3.4
Total
58
100.0
BASIS FOR EAST AFRICAN COMMUNITY INVESTMENT PROMOTION STRATEGY
Sector based
47%
Foreign country Target
17%
Mix of Sector and Country
36%
41
Respondents were asked in Question seven (7), what could be done to
strengthen the current investment promotion efforts of the EAC IPAs. The
largest percentage of them proposed that the EAC should structure regional
projects for FDI. The other responses were also captured in the table below
Table 15: Strengthening current efforts by IPAs in EAC
Frequency
Percent
Market EAC Projects as one
36
62.1
Harmonize Investment Procedures
6
10.3
Evaluate Investment Incentives
5
8.6
Self Marketing by EAC Countries
3
5.2
Increased Advertisement
1
1.7
Budget support
3
5.2
Target Productive Sectors
2
3.4
Involve EAC Private Sector
2
3.4
Total
58
100.0
The survey tried to capture the perceptions on what makes the EAC
competitive among all the RECs within which it is located since the member
states have over lapping membership in IGAD, COMESA, the Great Lakes,
and SADC. The responses were meant to assist the research in
determining the competitiveness of the EAC and the comparative
advantage it may have over the other RECs in the region in order to
capitalize on these when developing a marketing strategy. The responses
were coded under eight (8) descriptions according to the responses given.
42
Table 16: Reasons as to why FDI would choose to locate in the EAC
Frequency
Percent
Good business Environment
17
29.3
Tourism Potentialities
6
10.3
Oil and Gas discoveries
2
3.4
Large Market
8
13.8
Strategic geographical site
5
8.6
Cheap and Skilled labour
1
1.7
Stable Political atmosphere
10
17.2
Customs Union Implementation
2
3.4
No Response
7
12.1
Total
58
100.0
The challenges faced in promoting the EAC as a single bloc for FDI as
opposed to an individual country are listed in the following table.
Respondents were asked to list the three (3) main challenges. These were
coded according to the descriptions outlined
43
Table 17: Challenges faced in promoting the EAC vs Your Country as
an Investment Location
CHALLENGES FACED
Frequency Percent
Inadequate funds
18
31.0
Inadequate spirit of Unity
5
8.6
Competition among member states
6
10.3
Inadequate infrastructure
6
10.3
Administrative barriers
4
6.9
Different economic development
7
12.1
Different political ideologies
7
12.1
Insufficient investment knowledge
2
3.4
Differences in resources
3
5.2
Total
58
100.0
4.4: Summary
This chapter has presented the survey findings. The following chapter will
discuss their implications. However, even from the presentation, one can
confirm the validity of the research proposition. There is a need for a
strategic plan for investment promotion within the EAC. Factor endowments
alone are not enough (Cho and Moon, 2000), and if there is no deliberate
effort to package the EAC opportunities, some member countries may lose
out altogether, with FDI being channeled to particular members. This will
lead to unbalanced economic growth within the region. The very problem
that the EAC was created to counter.
The following chapter discusses the findings of the survey as well as some
of the secondary data.
44
Chapter 5: Discussion on Findings
5.1: Introduction
The information gathered from the survey and the literature that this
research was able to review, support the research proposition that national /
regional wealth is not achieved by natural endowments, but is , according to
Cho and Moon (2000), created by strategic choices. The EAC is a complex
REC comprising overlapping membership.
In order to attract FDI to the EAC, there is an urgent need to look beyond
the comparative advantage/s of the region as a selling point, and pursue a
realistic regional investment promotion strategy. A study of the current
marketing mechanism in the EAC in comparison with the mechanism in
other RECs like the EU, particularly Centrope, and the theories developed
in past literature by scholars on the subject of integration and FDI, confirms
that marketing a region by individual member states is difficult due to
increased competition for FDI. A sector based strategy therefore; focusing
on the development needs of the member states will go a long way in
ensuring equitable FDI location in the region. This kind of marketing
strategy however needs to be founded on a number of political, social and
economic fundamentals as evidenced from a number of opinions in the
survey.
The three questions that can be posed at this point are:
1. The majority of the respondents affirm that there is a regional
marketing strategy in place, but how effective is it?
2. How can the EAC be made attractive as a whole (become
competitive)?
3. Which sectors can be packaged as „truly‟ regional sectors?
45
These three questions will guide the discussion in this chapter whose aim is
to ultimately contribute to the ongoing efforts of determining the most
strategic marketing mechanism for attracting and sustaining FDI in the
EAC. The chapter is divided into three sections.
Section one, analyses the status of the current investment promotion
strategy and offers some mechanisms that could enhance what is in place.
Section two, focuses on the strategic plan for investment promotion that
would make the EAC increase its competitiveness using examples gleaned
from the literature review and other reading material gathered during the
research. The third section offers conclusions to the discussion in the
preceding sections.
5.2: Status of the Investment Promotion Strategy in the EAC
In 2000, the three IPAs of Uganda, Kenya, and Tanzania, formed the East
African Association of Investment Promotion Agencies (EAAIPA), which has
since been joined by Rwanda and Burundi. Together they identified
agriculture, tourism and ICT as the priority sectors in which the region had
comparative advantage and began to individually advocate for enabling
policy reforms to ease setting up investments in those areas in order to
make the investment in the sector attractive.
Though the sectors were labeled „regional‟, investment promotion was and
still is largely carried out individually and on about two occasions a year a
regional outward mission will be carried to a target country. This situation
confirms Dr. Valerie Engammare (2009)‟s deduction that „several countries
within a region may join forces to attract investment. However, such
cooperation may be limited in scope to information exchanges or joint
training or joint promotion activities‟
46
Most of the respondents stated that there was a marketing strategy in
place. However, when asked to detail the strategy, the responses detailed
the promotional activities carried out in cooperation, for instance; Outward
business missions, where the East African delegation travels to a target
country to market the opportunities at business forums, seminars, and trade
and investment fairs; Investor conferences - the EAC holds one annually;
Inward missions – where a foreign business delegation will make a
business trip covering the region; and public private sector dialogue.
Though these activities do achieve some results, they should not be
construed to mean a „mechanism‟. Activities are included in mechanism or
„system‟. The research submits that the system is what is missing in the
current strategy and suggests that the EAC could adopt any of the following
three strategic mechanisms that have been adopted elsewhere with
promise of positive results.
i.
Centrope in the European Union (EU)
During the preparations for the EU enlargement and in the face of
increasing regional competition, regional development agencies in the
Vienna region (wwFf, Vienna – ecoplus, Lower Austria – Wibag,
Burgenland – Austrian Business Agency) began together with agencies
in the neighbouring southern Bohemia, Southern Moravia, and western
Hungary, to profile and market the region as whole in the framework of
the Interreg III Project: FDI in Centrope (Interreg IIIA Project Concept
Paper, centrope / EU). The project ran for two years from July 2005 to
June 2007.
Under the project, basic economic data was collected, the developments
analyzed with experts and economic policy interventions identified. The
provision of missing information on selected business sectors and other
relevant FDI factors for the entire region was made priority. Zhang
(2005) „Competitive positioning and sector/activity/region targeting is a
complex process and requires: a detailed knowledge of industry sector
47
and trends, cluster development, FDI trends, company strategy, typical
projects requirements and parameters and best practice IPA activities.‟
Sector data bases were purposed to be shared across the region.
Jointly developed marketing instruments were prepared and produced,
as well the establishment of a joint website. A Centrope brand was
developed and there were efforts to centralize at one location, the
regional network activities within and outside the Centrope region i.e.
other European regions.
In order to make regional marketing a reality, a dedicated Regional
Investment Agency (RIA) may need to be formed i.e EAC RIA.
COMESA has one such agency the COMESA RIA. Each of the IPAs
could second investment promotion and research staff to the regional
body. This would allow the IPA to focus more on the implementation of
FDI plans, have access to update regional and country data to promote
the region and country opportunities in a more structured way, follow up
on target companies and FDI markets, and most importantly, strengthen
aftercare services. Joong - Wan Cho (n.d) rates investment facilitation
and after care services as an increasingly important component of
investment promotion as can be a significant source of FDI through re-
investment and satisfied retained investors attracting more FDI to the
location. Currently the aftercare services, though a core function of the
IPA among the IPAs in the EAC, are not given the priority they deserve.
This is evident from interviews with the private sector who say that the
IPA is effective in the initial stages of an investment, implying that little
assistance is availed later. However, IPAs do not have control over a
number of the regulatory issues that beset investors.
ii.
China
According to Jinkang Zhang (2005), getting the relationship right
between national and regional IPAs is of particular importance to China.
48
Even in the midst of intense competition for FDI among the region‟s
IPAs, there should be a clear understanding of the type of national
projects being aimed at so that when a lead comes there is a clear
rationale which region is best suited for it. This kind of coordination is
only possible if there is sufficient knowledge of the investment trends
and what is beneficial to the economy.
The survey established that there is a general perception that the kind of
FDI received in the EAC does not quite match the investment needs.
Most of the member states are agro economies but the sector is the
most underdeveloped as far as technology is concerned.
According to the WIR 2001, FDI in China had experienced changes over
the last two decades at the time. FDI in the 1980s was mainly in the
labour intensive industries, the early 1990s witnessed the change in
trend to capital intensive industries, and then to tech – intensive
industries since late 1990s. To date, FDI is moving into the hi-tech
innovative industry. Through all these changes there were structured /
deliberate attempts to attract the right kind of FDI i.e for the labour
intensive era, more preferential treatments were aimed at attracting
export oriented enterprises. The EAC however, has been caught up in
an intermediary era where there is a lot of global pressure to compete
for FDI in the current trends at the expense of some traditional settings
that need effort to transform.
The EAC may need to take a step back and critically analyze where real
development is needed and focus both government development funds
and FDI towards those areas, while providing for the current FDI needs.
The sectors of the economy need to be given a chance to evolve just
like China and the other developed nations. The IPAs need to take the
lead in identifying the sectors, their status and develop viable investment
opportunities.
49
iii.
Vietnam
Mai The Cuong (MBA) was invited to present a marketing approach to
FDI attraction at the Vietnam Development Forum in August 2004. The
self assessment list from the government ran like the one that was
captured from this research. Some of the problems that led to an
ineffective promotion strategy included;
The master plan for attracting FDI was lacking
List of projects calling for investment did not meet the need and
interest of investors (insufficient / lack of relevant information)
Lack of updated on line material
Lack of budget for promotion activities
Different incentives from different provincial authorities (all the
member state of the EAC still have individual domestic laws
which run concurrently with the Customs Union laws
Unclear positioning statement (there has been no branding effort
for the EAC, each country is the process of developing its own
brand)
Ineffective promotion strategy and communication programme
Mai‟s advice to the Vietnam government was to focus on five (5) strategic
marketing variables. The following would work for the EAC as well. This
section will pick the first variable for purposes of discussion. The first
variable was the product. The research confirmed EAAIPA‟s findings that
the most viable regional sectors were agro processing, tourism and ICT.
The EAC IPAs need to go beyond promoting them generally to research on
the relevant regional and global data concerning these, develop sellable
projects that will attract funding, investment and the much needed jobs. The
business environment and policy issues within these sectors need to be
harnessed to make the investment climate conducive for the sectors to
thrive.
50
The three mechanisms outlined above would be literally „shot down‟
because of lack the need for funds to implement them. However, the initial
stages of formulating the mechanism do not need funds. What is also
needed before the funds can materialize is the political will at regional level.
The IPAs need to embark on the formulation of a strategic mechanism and
lobby the governments through the regional institutions and individually to
make them happen. A number of respondents rightly stated that different
political ideologies and lack of united political will are a major challenge to
the regional promotional efforts of the EAC.
5.3: Strategic Plan for Investment Promotion
The research analysed the „draft roadmap towards effective promotion of
investments in the EAC‟ produced by the EAC Secretariat. The strategies
suggested were more of passive i.e. image building, identifying policy
advocacy interventions, etc. The pro active stragety of packaging
investment proposals in some sectors fell short of determining which
sectors were regionally critical from the list of nine. A regional consensus
has since been agreed by the EAAIPA and supported by a broad cross
section of respondents in this research survey, that the priority sectors are
agro processing, tourism and ICT. In order for these sectors to attract FDI;
the following strategies could be adopted;
i.
Value Chain Analysis
Using the value chain analysis strategic agri business sub sectors can
be packaged for investment to enhance agricultural transformation and
benefit a wider spectrum of the region. A value chain „describes the full
range of activities which are required to bring a product or service from
conception, through the different phases of production (involving a
combination of physical transformations and the input of various
51
producer services), to delivery to the final consumer and final disposal
after use‟ (Kaplinsky and Morris, 2000). An opportunity in the fruit
processing sector (fruit concentrate extraction) could combine farming,
harvesting, and semi processing of the fruit in Uganda for onward further
extraction, packaging and distribution in Kenya which borders the coast.
ii.
FDI regional projects
Cooperation is already under way at identifying and formulating
industrial projects of mutual interest. What has not been undertaken is
the „feasibility studies and formulation of bankable project proposals. An
efficient infrastructure is the backbone of any economy. For FDI to
flourish, the transport and energy infrastructure needs to be efficient.
This is not the case in the EAC. Three of the member states are
landlocked and the internal transport system under developed. Master
plans for the development of infrastructure have been developed in the
structure of public private partnership proposals. However, these can be
further packaged into manageable investment proposals so that FDI
together with local investment can take them up. This would solve the
infrastructural problems one step at a time. The survey also established
from the IPA respondents that there was a need to formulate regional
sector projects with all the relevant investor information i.e. up to date
data information on the sector, the technological and market potential,
national laws and regulations, costs, availability of labour and other
inputs, as well as potential partner experiences‟ (UNCTAD: Economic
Development in Africa Report 2009) . Funding needs to be prioritized to
see these studies to fruition
52
iii.
Enhancement of the SME
The EAC IPAs should focus their services on the enhancement of the
SMEs. The Ugandan IPA is already doing this through the establishment
of a department wholly dedicated to SME investment issues and has
partnered with other institutions to support a business linkage
programme which coordinates the efforts at improving the service
delivery from the SMEs with the established TNCs in the country. The
survey established that one of the attractions for FDI is viability in the
sector. A thriving SME makes a sector viable because the services and
inputs needed for an industry can be provided at a lower cost at the
point of production. IPAs therefore ignore the SMEs at their own peril.
According to UNCTAD 1998b cited in Joon-Wan Cho (n.d), strong local
firms attract FDI and the FDI in turn enhances competitiveness and
dynamism of the SME sector. He further suggests that foreign SMEs
should be targeted for investment. They are more likely than the big
TNCs to transfer appropriate technology to developing countries and
have more flexible local arrangements by using subcontracting to a
greater extent. The EAC IPAs have a tendency of focusing on the
attraction of big TNCs.
iv.
Research and Development
The importance of gathering, processing and distributing quality trade
and investment related information cannot be over emphasized. The
regional IPAs need to put in some deliberate effort at establishing a
mechanism through which such information can be prepared so as to
enable access to it at any time. In the earlier pages of this report, this
research advocated for a research unit created at a centralized regional
IPA. The Joint Export and Investment Promotion Strategy for the EAC
highlights research and development as a strategy, but only suggests
53
capacity building in the area. The kind of national, regional and global
information that could be processed by this unit would not only benefit
the IPAs but the potential investors worldwide who should be able to
access the facility directly as well. It is imperative that the research and
development facility be set up as a matter of priority.
v.
Specialization
The research calls for priority sector targeting. With the hind knowledge
of the different comparative advantages enjoyed by the different
member states of the EAC and the different levels of economic
development, specialization would enhance the competitiveness of the
different areas within the region. According to Michael E. Porter (2000)
the central issue in becoming globally competitive is how to create the
conditions for rapid and sustained productivity growth in a particular
industry.
A good example has been that of Singapore, which has emerged to be
one of Asia‟s prominent biotech centres. Despite its small size, many
key biotech players have been attracted by its strong regulatory
infrastructure, sound intellectual propert protection, skilled workforce,
and cutting edge research. Well known scientists such as Dr Alan
Colman, famous for his work on cloning Dolly the sheep, have relocated
to work in Singapore‟s growing biotech community (FDI Magazine
2003). The EAC should begin to consider creating industry clusters
within the region e.g. Uganda – an agro processing and petro chemical
industry hub, Kenya – a manufacturing and tourist hub, Tanzania – a
mining industry hub, Rwanda – a cultural tourism and a geo thermal
energy hub, and Burundi - a horticultural production hub, among others.
54
5.4: Conclusions
The major objectives of this research were to establish how effective the
investment promotion strategy of the EAC was in the light of regional
integration and to identify which sectors within the region could be
packaged as regional projects that could attract the right FDI to support
equitable economic growth and development among the member states
The deductions have been made from mainly people‟s perceptions,
experiences and attitudes as well as comparisons with past researches in
the area of FDI and regional integration. The results of this research are
therefore not very scientific, but can be relied upon since the population of
the survey was selected according to relevance to the topic and expertise in
the area.
The research hypothesis which has been supported by published authentic
researches has served the purpose of an unbiased evaluation of the current
marketing mechanism, an activity which is hardly done. The research has
also contributed to the ideas for a proactive investment promotion strategy
that takes a sector based approach.
5.4.1: Limitations of the Research
1. One of the objectives of the research was to carry out a feasibility
study of the viable sectors identified by the survey. This was not
done due to insufficient time and resources to carry out such
extensive studies.
2. The population sample should have been bigger and more
representative regionally to achieve scientific data.
3. The research was unable to get representative information from one
of the partner states (Burundi) because of a language barrier. The
official language is French, which the researcher was not fluent in.
55
Only one out of the ten (10) subjects targeted in Burundi was able to
respond.
5.4.2: Further areas for Research
1. There is still a need to carry out feasibility studies in the priority sectors of
the EAC and the EAC Secretariat lacks the funds to do so. This is why the
research proposes the creation of a regional investment agency with the
two core functions of Research and Development and Information
Dissemination, funded by the partner Ministries of Finance and EAC Affairs,
with staff seconded from the EAC IPAs.
2. This particular research was more like a self evaluation of the IPAs and
EAC institutions on the effectiveness of the marketing of the region for FDI.
A lot of research has been done on investor perceptions asking them about
the regulatory climate and what attracted them to locate in the region.
Focus has not been put on how they were attracted to invest in the EAC.
A survey focusing how, from 2000 when EAAIPA was formed to 2010,
would further evaluate the effectiveness of the marketing strategy in place.
Hearing from the recipients of the strategy would enable a clearer
understanding on how effective the investment promotion is.
56
APPENDICES
APPENDIX 1: BIBLIOGRAPHY
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Economic Report on Africa, 2009. Developing African Agriculture through
Regional Value Chains
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FDI Magazine, April/May 2003. Biotech Opportunity: How to Find the Best
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Integration and FDI in Emerging Markets, Working Papers No. 1418
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Operations of Four National Investment Promotion Agencies, The World
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Economic Integration in Africa: The Case of COMESA, Vol 2, Article 3, the
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Regional Trade, East African Business Week
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Tayyebi, Seyed K. (Dr.) and Hortamani, Amir (Dr.), The Impact of Trade
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60
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61
APPENDIX 2: LIST OF TABLES, GRAPHS AND CHARTS
List of Tables
Page
Table 1:
FDI Overview in the EAC ……………………………………………..6
Table 2:
Doing Business Ranking …………………………………………….16
Table 3:
The 2010 Index of Economic Freedom ………………………….…16
Table 4:
Tabular Representation of Survey Population and Outcome ……24
Table 5:
The Survey Population ………………………………………………26
Table 6:
Country Representation of the Survey Respondents …………….27
Table 7:
Status of Response toward Existence of Promotion Mechanism for
the EAC ………………………………………………………………………………....28
Table 8:
Effect of Regional Integration and Competitiveness of EAC to
Attract FDI…………………………………………………………………………….….29
Table 9:
Mechanism for Promoting Investment in the EAC…………….…..30
Table 10:
Success of Different Promotion Methods ………………………….30
Table 11:
Source of FDI to the Country ………………………………………..31
Table 12:
Most Viable Sector for Investment ………………………………….32
Table 13:
Proposed Basis for EAC Investment Promotion Strategy ………..33
Table 14:
Explanation for Preferred Basis for Promotion Strategy ………….34
Table 15:
Strengthening Current Efforts by IPAs in the EAC ………………..34
Table 16:
Reasons as to Why FDI Would Choose to Locate in the EAC ….35
Table 17:
Challenges Faced in Promoting the EAC as a Regional Bloc Vs
Country…………………………………………………………………………………...36
List of Graphs
Graph 1:
EAC Foreign Direct Investment Trends …………………………….7
Graph 2:
EAc Member States Performance in Attracting FDI ………………..8
Graph 3:
Occupation of Respondents……….…………………………………27
Graph 4:
Representation of Success of Different Promotion Methods….….31
List of Charts
Pie Chart 1:
Responses toward Existence of Promotion Mechanism………….28
Pie Chart 2:
Representation of Responses toward Existence of Promotion
Mechanism…………………………………………………………………………….…29
Pie Chart 3:
Representation of Most Viable Sector for Investment…………….32
62
Pie Chart 4:
Representation of Proposed Basis for EAC Investment Promotion
Strategy………………………………………………………………………………..…33
63
APPENDIX 3: RESEARCH QUESTIONNAIRE
A STUDY OF THE MARKETING STRATEGY FOR FDI IN EAST AFRICA
IN THE LIGHT OF REGIONAL INTEGRATION: A FOCUS ON
STRATEGIC SECTORS & PROMOTION MECHANISM
Research Questionnaire
Dear Respondent,
Thank you for accepting to participate in this survey, which is intended to
hopefully contribute positively to the on-going efforts at establishing
practical investment promotion strategies for the East African Community
(EAC) even as the economic bloc moves towards full integration. This
particular survey is in partial fulfillment of a MSc Investment Promotion
and Economic Development.
Sheila K Mugyenzi
Senior Investment Executive
Uganda Investment Authority
Guidelines for filling in the questionnaire
Please ‘fill’ the choice boxes with a dark colour, answer the rest as
requested, save, and then mail the filled questionnaire back to me at
skarungi@ugandainvest.com
Thanks again
64
Respondent data
1. Please indicate where your occupation is best described
Trade & Investment Government Official
East African Community Official
Private Business
Business Consultant
2. Please indicate your country of origin
Tanzania
Uganda
Kenya
Rwanda
Burundi
Status of EAC Competitiveness
3. The revival of the East African Community will boost the
competitiveness of the member countries more than increase
competition among the member states in the drive to attract
Foreign Direct Investment (FDI)
Strongly agree
agree
no opinion
strongly
disagree
Disagree
65
4. Which 3 sectors among those listed below, would you consider as
most viable for investment in the EAC? Please indicate your
suggestion using numerals 1,2,3 against the sectors in descending
order of viability (write in the box provided if filling hard copy or write
numeral in brackets at the end of the chosen sector if filling in via the
computer)
Information Communication Technology
Tourism
Agriculture and agribusiness ie. Food processing
Education
Financial services
Real Estate
Floriculture
Transport and Logistics
Mining and oil
Investment Promotion Strategy
5. What do you suggest would be the best basis for an EAC
investment promotion strategy to attract and sustain investment in
the region?
1
66
Sector based strategy
Foreign country target strategy
A mix of the sector and country target strategy
The basis option does not matter
6. Please give an explanation for your choice in (5) above
________________________________________________________________
7. In your opinion, what can be done to strengthen the current efforts
among the Investment Promotion Agencies within the EAC to
market the economic bloc as the preferred investment destination
in Africa?
________________________________________________________________
8. What would you think are the (3) main challenges encountered in
promoting the East African region vs your country as an investment
location
67
This section is intended for Investment Promotion Agencies, the
EAC Secretariat officials and Government officials only
9. The EAC is surrounded by other economic blocs like the SADC,
Great Lakes region, COMESA, etc. Please give two reasons as to
why FDI would choose to locate in the EAC over the other options.
10.Please list the top three (3) country sources of FDI to your country
68
11.The following promotion methods have proved to be successful in
attracting FDI to the country. Please indicate your opinion by filling
or ticking the relevant box.
a) Target e-mail:
strongly agree
agree
disagree
Strongly disagree
not sure
b) Website promo:
strongly agree
agree
disagree
Strongly disagree
not sure
c) Outward Mission:
strongly agree
agree
disagree
Strongly disagree
not sure
d) Cold calling:
strongly agree
agree
disagree
Strongly disagree
not sure
12.Has your institution / organization established a mechanism for
promoting investment opportunities in cooperation with
counterparts in the EAC?
Yes
No
Not sure
I don’t know
69
13.If your answer was ‘Yes’ in no. 12 above, please detail the
mechanism in the space provided below.
This section is intended for Private Sector Persons only
11. If you needed to expand your investment or set up a new investment
within East Africa, which institution / organization would you approach
for information?
Business Consultant (home based)
Business Consultant (target country based)
Business Consultant (International)
Investment Promotion Agency (target country based)
Regional Agency
Ministry of Trade / Commerce
70
Embassy (target country)
Website
I sincerely appreciate the time you have taken to fill in this questionnaire.
If you would like the research report to be shared with you, please write
your e-mail address in the space provided below.
E-mail: ________________________________________
Date of submission of questionnaire: ___________
71
APPENDIX 4: CODE DESCRIPTIONS FOR THE OPEN ENDED
QUESTIONS
QN 6: 1 "Existing foreign Markets"
2 "Regional growth from Sector grow"
3 "Viable sectors attract Investors"
4 "Double maximization of benefits"
QN 7: 1 "Market EAC Projects as one"
2 "Harmonize Investment Procedures"
3 "Uprising Investment Incentives"
4 "Self Marketing by EAC Countries"
5 "Increased Advertisement"
6 "Budget support"
7 "Target Productive Sectors"
8 "Involve EAC Private Sector"
9 "Staff Capacity buildup"
QN 8: 1 “Inadequate Funds"
2 “Inadequate spirit of Unity"
3 “Competition among member states"
4 “Inadequate Infrastructure"
5 "Administrative Barriers" corruption, embezzlement, bureaucracy, power
tariffs
6 "Different Economic development"
7 "Different Political Ideologies"
8 "Insufficient Investment Knowledge"
72
QN 9: 1 "Good business Environment"
2 "Tourism Potentialities"
3 "Oil and Gas discoveries"
4 "Large Market"
5 "Strategic geographical site"
6 "Cheap and Skilled labour"
7 "Stable Political atmosphere"
8 "Customs Union Implementation"
9 "More Multilateral Agreements"
QN 10: 1 "United Kingdom"
2 India
3 Kenya
4 China
5 Libya
6 Pakistan
7 Others Germany, Saudi Arabia
QN13: 1 "Annual EAC Investment Conference"
2 "Outward Missions"
3 "Inward Missions"
4 "Constant Dialogue"
5 "Sensitization Programmes"
6 "EAC Private Sector Involvement"
7 "Investment Promotion in EAC"
73
QN 14: 1 "Business Consultant-Home"
2 "Business Consult-Target Country"
3 "Business Consult-International"
4 "IPA-Target Country"
5 "Regional Agency"
6 "Ministry of Trade/Commerce"
7 "Embassy-Target country"
8 Website
9 "All mentioned Institutions"
74
APPENDIX 5: DECLARATION
I declare that the work undertaken for this MSc Dissertation has been
undertaken by myself and the final Dissertation produced by me. The work
has not been submitted in part or in whole in regard to any other academic
qualification.
Title of Dissertation:
A Study of the Marketing Strategy for FDI in East Africa In The Light of
Regional Integration
Name: SHEILA KARUNGI MUGYENZI
Signature:
Date: 30
th
September 2010
Информация о работе The Marketing Strategy For FDI In East Africa In The Light of Regional Integration