Investment Promotion

Archived Topic Box from the 2003 Third Annual Benchmark Report

British Columbia's investment performance has been poor for most of the past decade, as witnessed in the two measures included within this report – Business Gross Fixed Capital Investment as a percentage of GDP (reflecting total business investment) and Non-Residential Business Investment (which excludes residential construction). BC posted a poor tenth and eighth respectively for improvement from 1993-2002 on these two key indicators of overall business investment performance.

In considering how to improve overall economic progress, business investment levels are certainly a precursor for raising levels of real GDP performance, and there are a number of critical factors forming the foundation of positive business investment flows. These include relative taxation levels (both business and personal), the regulatory burden (including the quantity, procedural requirements, and timeframe for decisions), along with quality of life considerations (housing costs, health care, quality education, etc). Lower relative levels of business and personal income taxes – to look at one example – will generally make a jurisdiction more attractive to investors than a higher-tax jurisdiction. Making comparisons of the other factors will also demonstrate how attractive a jurisdiction is for investment relative to key competitors. Once a jurisdiction has enough of these factors in a "competitive state", efforts to promote investment can succeed. Yet, carrying out investment promotion activities can be counterproductive if not enough of these factors are competitive. BC's current mix of "critical factors", together with sub-par investment performance, suggests the time is likely ripe to promote the province.

Investment promotion is a necessary activity – once a jurisdiction has an attractive policy mix – to bridge what economists refer to as "imperfect information" or "informational market failures". In other words, how can domestic and foreign investors know about improvements in British Columbia's investment climate unless they are told about them? Business is a natural partner in promotional activities, but typically do not contribute significantly to investment promotion activities. Evidence suggests that agencies that promote investment in other jurisdictions finance such activities to the tune of 70 percent. In other words, all orders of government have a significant role – and ongoing stake – in making the investment community aware of BC's positive attributes, and more generally, using promotional activities to generate and perpetuate a "virtuous" economic cycle. A recent study of 160 programs in 58 countries concluded that investment promotion programs generally result in higher foreign investment flows.

Leveraging the successful Olympic bid is certainly one excellent way to promote BC to investors. The games will provide an excellent opportunity to showcase BC's many positive attributes in the run up to 2010. But, further efforts on investment promotion, investor servicing, and image building are likely required if BC is to replenish aging capital stock in many industries and attract further green-field investments. And higher business investment is critical to fueling levels of export-led growth which, along with raising productivity levels, is essential for achieving our ultimate goal – raising British Columbians' overall standard of living.

Sources: Jacques Morisset, Does A Country Need A Promotion Agency To Attract Foreign Direct Investment?: A small analytical model applied to 58 countries, World Bank Policy Research Working Paper 3028, April 2003