The term Foreign Direct Investment (FDI) has its roots in development economics i.e. how do you develop your economy, especially if you are a struggling nation or emerging economy lacking in capital, without adequate infrastructure and with a poorly educated population. The panacea, traditionally, is Official Development Assistance (ODA) or foreign government aid designed to promote economic development and the welfare of developing countries and to make these fledgling economies viable for FDI.
In contrast, the Nordic countries have stable and developed economies, access to capital, well developed digital and physical infrastructure, and highly educated and skilled workforces. The Nordic countries are the providers, not the beneficiaries of Official Development Assistance.
It is time to drop the use of the term FDI in the Nordics, since none of the warranted conditions apply. Let’s simply settle for Investment Promotion as a term. Nordic countries still need investments, but if they are foreign investments or not is not the issue.
This is the spirit in which the Nordics can approach Investment Promotion, looking at what we do best, and how investments can ensure that we have sustainable businesses and societies in the future.
Does it make a difference if investment is foreign or not?
Using the term FDI can mistakenly lead to the association that our advanced and stable Nordic economies require foreign capital to start functioning, and that a foreign investment is somehow better than a domestic investment. This is not a truism. However, there are instances when foreign investments make perfect sense. Take the example of a new international technology which can be introduced in the Nordics with a suitable investment, giving the economies access to the technological benefits and the know-how which comes with it. Or the international investment which, once made, opens up export market opportunities enabled by the new investor.
Nordic municipalities and regions need to be aware of why they are seeking foreign investments. Could other Nordic or domestic investors yield the same results? Might we paraphrase the Roman emperor Vespasian, ”domestic money does not smell”?
As the Nordic countries are exploring sustainable investments, the question arises regarding which investors can best cater to the needs.
Investment promotion – Why Nordic municipalities and regions need to do some soul searching
While it is sound advice to municipalities and regions to take stock of their assets and strengths, to formulate clear and attractive place value propositions to potential investor segments, it is also wise to see behind the question of ”what can we offer?”. That other question in terms of investments, is ”what do we need?”.
In the perspective of a local or regional business ecosystem it could be that there are gaps in the value chain/value network which an investor could fill, a new technology which could boost a specific industry, or an infrastucture investment which could enable new processes or business models. The cap in hand approach to Investment Promotion should make way for a more discerning and strategic approach based on what benefits the place.
Especially when it comes to sustainable business ecosystems and societies we need to be more scrupulous and revert to the question of ”what do we need?”.
The role of public sector in investment promotion
The purpose of investments, be they foreign or domestic, is to develop and boost the economy. A healthy and vibrant business environment creates the conditions for good jobs and improved quality of life for citizens, and resilience and competitiveness for businesses.
While the businesses are striving for success with the means at their disposal, they are also part of business ecosystems which can impact their progress. The public sector (national, regional and local governments) is not a party to corporate strategy, but it does have a significant role in the policies and investments which are critical to the development of business ecosystems – investments in digital and physical infrastructure, the availability of skilled labor and talents, and the access to demo sites, R&D and technologies, for example.
The public sector has a unique position when it comes to enabling the systems level of society, in a way that the private sector does not. Most utilities are a case in point, as are nationwide infrastructure for electricity, water, digital access etc.
The public sector has a role when it comes to the sustainable and long term development of business ecosystems by enabling solutions on the systems level.
Mats is the resident consultant in Business & Innovation at Future Place Leadership
