Dubai: Foreign direct investment flows into national economies are functionally related to innovation and government policies, according to an international panel that discussed the role of creating right ecosystem to attract foreign investments and achieve economic growth.
While innovation is widely recognised as a key factor that supports competitiveness and FDI inflows, panellists said it is not just the research and development (R&D) alone that leads to successful innovations rather it is the ideas behind the innovations that will define their efficacy and sustainability.
“We are living in an age of new ideas. Innovations are not just about R&D. Look at Uber. Its success comes from the newness in the idea. It has redefined the concept of taxes and ride sharing across the world,” said Xavier Sala-i-Martin, professor of Development Economics and co-author of World Economic Forum’s Competitiveness Report.
Innovations in themselves may not necessarily lead to business success or become a reason for attracting investments, said Sala-i-Martin.
“Take the cases Kodak that pioneered digital photography or consider Nokia’s role in mobile telecommunications. Both were great innovators at some point in time, but innovations alone could not sustain their growth,” he said.
While innovations could make or break corporations, panellists said, going forward companies should give a wider context to innovations.
“It is not just enough for one company to innovate for itself, but it should thing about the whole ecosystem of supply chain. Innovators should work in partnership and flexible enough to make changes for the benefit of larger environment in which companies operate,” said Jorge Ramos de Oliveira Junior, President, Embraer EMEA.
Free zones
Around the world there have been attempts to make innovations for entire business ecosystems or creating innovative business ecosystems. One such example is the creation of free zones. Currently there are more than 4000 free zones across 130 countries.
“These are attempts to innovate on tax rules to encourage investors to work together in an ecosystem that supports entrepreneurship. The whole idea is support an environment that comes with ease of doing business,” said Samir Hamrouni, CEO of World Free Zones Organisation, UAE.
Traditional economic view is that competitive business environment is important to attract investment to a country or a region, but in recent years governments across the world are using policy tools including economic diplomacy to attract foreign investments.
Countries across the world have investment promotion agencies that play crucial roles in attracting foreign investors into the country.
The role of these agencies is very important to many new entrants into a country. Panellists said, increasingly proactive government policies are becoming decisive in attracting FDI.
“Conventional incentives through monetary and fiscal measures are becoming less attractive to investors. Economic diplomacy is playing a major role in attracting investors. The UAE has been very successful in recent years in economic diplomacy and it has been playing a big role in improving investor confidence in the country,” said Fahad Al Tareq, Director of Economic Affairs and Internatioanl Cooperation, UAE.
