Countries looking to attract foreign direct investment need to offer political stability and freedom from corruption, according to the first vice prime minister and minister of economy and sustainable development for Georgia, Dimitry Kumsishvili.

Georgia has been cited as an example for countries looking to attract foreign direct investment, having moved up the World Bank's Ease of Doing Business from 112th in 2004 to ninth this year.

Kumsishvili said that governments should "be stable, the laws should not change and the government should be visionary" during a panel debate at the Annual Investment Meeting in Dubai on Monday morning, but added that corruption "is the biggest barrier" when it comes to attracting investment.

"If the investors see that the government is corrupt, nobody wants to come in the country," he said.

Paulo Portas, deputy chairman of the Portuguese Chamber of Commerce and a former minister of state for Portugal, said in an earlier panel that countries need to realise "we are all in competition at the same time for the same capital, so we must be aggressive if we want to win".

He also said that countries can choose to be protectionist, but it could cost them in the long term.

"You are free to build walls or raise tariffs, but don't think the world will wait for you, and when you wake up, you are not in the same position in the running," Portas said.

He said that while countries may strive to improve a range of measures to attract investors, including labour laws, corporate taxes, repatriation of profits and efficiency of its judiciary, they should strive to be among the top three within their region on at least one measure, or to be among the top five in the world.

Vera Songwe, executive secretary of the United Nations' Executive Commission on Africa, told the opening panel that FDI is important to Africa to help reignite growth on the continent and to help resource-driven economies to diversify.

Songwe said that Africa as a continent had experienced gross domestic product (GDP) growth of about 6 percent from 2002-12, but that this has subsequently dropped to around 3.4 percent.

"We know that we will need a lot more FDI to grow faster. We have a rising population growth and (to develop sustainably) we will need to diversify our economies to ensure that we create jobs and to ensure that everybody participates in the economy," she said.

She pointed out that FDI to Africa had recently declined by about 3 percent to $58 billion, but that targeted investment in areas like clean energy could not only provide good business opportunities for companies but also help to provide an affordable source of power on a continent where 600 million people still have no access to electricity.

Cost-benefit analysis

Yet Kofi Konadu Apraku, a commissioner for the Economic Community of West African States (ECOWAS), one of a number of major trading blocs in Africa, also cautioned that countries seeking foreign investment should also weigh up its costs. He said during the second debate that if a comprehensive study were undertaken into mining activities in Ghana (where he previously served as trade minister) that also looked at the environmental and health impacts "I'm not so sure that we would come ahead very much".

"As much as all of us are interested in FDI, we have to be very careful to ensure that the benefits we get from FDI is commensurate with what we have to forgo to get (the investment)," he said, pointing out that offering tax breaks to foreign investors impacts domestic investors.

"In ECOWAS, we have 15 countries, over 300 million people. We have a customs union, we are working towards a single currency, so the opportunity to open in such an environment is very high. And yet, at the end of it all, we have to be sure that we are getting value for our money for the potential disconnects that come with foreign direct investment," Apraku said.

Jamal Al Jarwan, secretary-general of the International Investors Council of the United Arab Emirates, said that although UAE investors were willing to make investments in countries' infrastructure, this was "considered the most complex investment position an investor undertakes”.

Investing in another country’s infrastructure “involves studying the market from a micro and macro point of view, political stability, market risk, competition, growth of the market, size of the country and whether geopolitically it makes sense”, Al Jarwan said during the second panel debate.
The Annual Investment Meeting is running at Dubai World Trade Centre until Wednesday.

(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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