Investment promotion agencies should seek improved transparency over the investors’ tap.

Measuring the success of foreign direct investment is important to both investment promotion agencies and multinationals. IPAs need to monitor its effects on economic growth, jobs and technology while managing risks like disruption within local communities or environmental damage.

Just as the needs of investors and local communities are changing, so must FDI measures. This year, the OECD revised its so-called Benchmark Definition of FDI, which sets international standards for the compilation of FDI statistics, with a focus on co-operation, collaboration and knowledge-sharing. It reveals there is a broader reassessment of how we should be determining the impact of foreign capital flows.

Global studies on how IPAs currently measure the impact of their work with foreign investors have found their efforts fall within three broad KPIs: economic impact (investment value and jobs), sustainability (such as projects supporting digital infrastructure and clean energy) and the level of their activity (number of IPA events and marketing).

But IPAs should also turn their attention to other areas when trying to maximise the effectiveness of their work. This includes understanding the ownership structures of foreign investors seeking to set up projects in their country. A better understanding of this adds another level of screening to ensure they would be deemed ‘acceptable’ investors to the country and to minimise potential risks going forward.

Placing a bigger focus on who ultimately owns foreign-backed projects can, at the end of the day, increase the host economy’s productive capacity. Also, identifying special purpose entities within ownership chains and measuring the FDI that passes through them reduces ‘investment round-tripping’, which can be a means of tax evasion.

However, a true measure of FDI’s local impact is difficult to capture, not least because they are not quantitative factors. Qualitative measures like the impact of inward FDI on political and institutional stability, or tendency for workplace militancy and strikes, are seldom reflected by IPAs.

The scope, complexity and number of investment laws and restrictions regarding both inward and outward FDI are growing. The impact of such restrictions is difficult to assess; for example, how can we quantify the heightened risks arising from secret owners or investors with ties to foreign military or defence companies?

Addressing gaps in FDI KPIs is a continuous and evolving process for policymakers, which requires collaboration with IPAs, foreign investors and third-party data providers.