Targeted incentives rarely have a positive effect, says investor
ED RICHARDSON
INFRASTRUCTURE and support systems such as the legal framework and banking are more attractive to international investors than incentives, according to a study by international consulting firm McKinsey & Company.
The study found that investment in developing countries held benefits for both the companies and the areas in which they invested - provided the companies made the necessary changes to the way they did business.
“New horizons for cost savings and revenue generation are opening up for multinational companies.
“Our sector findings suggest that there are enormous opportunities for companies to create value by taking full advantage of falling barriers in regulation, transportation costs, communications costs, and infrastructure. To find the value, companies need to rethink their entire business process,” the report says.
It supports attempts by South Africa and other emerging markets to attract investment through the creation of export zones such as Coega and the East London IDZ.
But, while the government has come under criticism from a number of sides for offering fewer incentives than those enjoyed in export zones elsewhere, the McKinsey report found “Targeted incentives rarely have a positive effect and often create harmful unintended consequences. Governments can more effectively grow multinational company (MNC) investments by putting the basic building blocks of productivity in place, through strengthened power, transportation, and legal infrastructures, and the enactment and enforcement of clear and consistent official policies.”
