For most of its history, investment promotion meant persuading a manufacturer to build a factory. The agency offered land, tax holidays and a fast permit; the investor offered capital expenditure and jobs; both counted the announcement. That model still exists, but it no longer describes the most valuable flows into India or the Gulf. Today’s mobile investment is a technology company choosing where to put its second engineering centre, a fund choosing where to domicile, a founder choosing which visa to apply for, and a multinational choosing which Indian city will host its next two thousand knowledge workers. Winning those decisions requires a different agency — and, as this article argues, a different definition of what “investment” means.
The idea in brief. Investment promotion works: the best evidence suggests that targeted, well-run agencies substantially raise inflows into the sectors they pursue. But the object of promotion has changed. Capital expenditure has been joined — and for many jurisdictions overtaken — by capability: the engineering centres, funds and founders whose location decisions are driven by talent, ecosystem and ease of operating rather than by land and tax. Agencies that win in the startup age sell a talent proposition, provide aftercare as seriously as attraction, coordinate the whole of government behind a single window, and measure retained jobs and expansions rather than memoranda signed. India’s national agency and its competing states, and the Gulf’s national IPAs and free zones, are converging on this model from opposite directions.
Does investment promotion work? The evidence
It is fair to ask whether the whole enterprise of investment promotion is worth its budget, and the question has a reasonably clear answer. Torfinn Harding and Beata Javorcik’s 2011 study in the Economic Journal, using data on sector targeting by agencies in developing countries, found that sectors explicitly targeted for promotion received substantially more foreign direct investment than non-targeted sectors — on the order of double — with the effect concentrated in countries where investors face the highest information and bureaucratic costs. Promotion works, in other words, because it reduces the cost of finding out and the cost of getting things done; where those costs are already low, promotion adds less.
Riccardo Crescenzi, Marco Di Cataldo and Mara Giua’s 2021 analysis in the Journal of International Economics examined European agencies and found that investment promotion is effective at attracting greenfield projects, with effects that depend on the agency’s resources and the quality of the surrounding institutions. Louis Wells and Alvin Wint’s much earlier World Bank work, Marketing a Country, had already established the practical lessons that still guide agency design: a clear mandate, autonomy from line ministries, private-sector-style staff and a focus on a manageable set of target sectors. The OECD‘s mapping of agencies across its members confirms how much variation in resources, governance and function remains, and UNCTAD‘s work through its IPA Observer series tracks the sector’s evolution, including the growing weight of aftercare and sustainability mandates.
The evidence base is strongest for the traditional object of promotion — greenfield projects with measurable capital expenditure. The newer flows are less well studied, precisely because they are harder to count. That is the first thing an agency in the startup age has to fix.
The object has changed
Three kinds of mobile investment now dominate the decisions that matter to India and the Gulf, and none of them is a factory.
Capability centres. The global capability centre — a company’s own offshore engineering, data, finance or research operation — is the defining inbound investment of India’s past decade. Industry estimates compiled by NASSCOM and Zinnov put the count of such centres at well over 1,700, employing close to two million people and growing at a pace of several dozen new centres a year. The capital expenditure per centre is modest; the value — high-wage employment, skills, export services, local supply chains — is large. Indian states have noticed: several, including Karnataka and Uttar Pradesh, announced dedicated capability-centre policies in 2024 with targets for new centres, tier-two city incentives and talent commitments, and others are following. Article 02 in this series explains why India hosts these centres; the point here is that attracting one is an investment-promotion task with almost none of the traditional levers — no land to allocate, little tax to forgo — and all of the new ones.
Funds and financial firms. The Gulf’s financial free zones — the DIFC in Dubai, ADGM in Abu Dhabi, Qatar’s financial centre, Bahrain’s long-standing financial-services base — and India’s GIFT City compete for fund domiciliation, family offices, fintech licences and, increasingly, venture-capital vehicles. The decision variables are regulatory quality, tax treatment, talent availability and proximity to capital and deals. Saudi Arabia’s regional-headquarters program, which from 2024 tied access to government contracts to the presence of a regional headquarters in the kingdom, is the most assertive recent use of demand-side leverage to win this kind of investment.
Founders. The smallest investment in capital terms and potentially the largest in outcome. Golden and startup visas, founder-friendly incorporation, sandboxes, and access to funds and customers are now standard instruments across the Gulf, and India’s Startup India framework provides recognition, tax benefits and a fund-of-funds. The founder is also the most mobile investor of all: a company that incorporates in one jurisdiction can move its centre of gravity to another within a year if the talent or capital proves easier to find there.
The founder proposition, itemised
Because founders are the most mobile and least capital-intensive investors, jurisdictions have been quick to build instruments for them, and the instruments have converged. What differs is execution: how many days each step actually takes, and whether the pieces connect.
| Instrument | What founders ask | What wins |
|---|---|---|
| Startup or golden visa | How long, how many co-founders and family members, can I hire? | Decisions in weeks; team and family included; a path to residency |
| Incorporation and licensing | Can I be operating this month? | Digital incorporation in days; a licence that matches a software business, not a trading company |
| Banking | Will a bank open my account? | A named banking partner with a service standard — the most common silent failure |
| Capital | Who will fund me here? | Fund-of-funds that has seeded local managers; co-investment with credible VCs; angel networks that actually write cheques |
| Customers | Will the government or its companies buy from me? | Procurement sandboxes; pilots with state-owned enterprises; corporate innovation programs with budgets |
| Talent | Can I hire engineers, and can they get visas? | Skilled-worker visas processed with the founder’s; access to campus pipelines |
| Soft landing | Where do I start, and who helps? | A landing program with a cohort, mentors and a concierge — the same machinery as a founder program (article 31), pointed outward |
A jurisdiction that offers five of these well and two badly will be judged on the two. Founders talk to each other, and the bank that took four months is the story that travels.
Free zones: the jurisdiction within a jurisdiction
The Gulf’s free zones — and India’s answer in GIFT City, whose financial-services regulator has built a distinct rulebook for funds, fintech and financial firms — are investment promotion made concrete: a bounded space in which incorporation, regulation, ownership rules and tax are tuned for a target investor. Their strength is speed and clarity; a founder or fund manager knows exactly what applies. Their weakness is fragmentation: a company inside a zone can find itself outside the wider market’s rules on hiring, banking or selling, and a jurisdiction with many zones can present an investor with many small propositions rather than one large one. The agencies that use zones best treat them as products within a single national proposition, with the promotion team selling the country and the zone together, and with aftercare that follows the investor across the boundary when it grows.
Reading the flows honestly
Headline FDI statistics remain the scoreboard by which agencies are judged, and they should be read with care. UNCTAD‘s World Investment Report series shows India’s inflows peaking during the pandemic-era surge and falling back sharply in 2023, while the UAE’s inflows have risen steadily to become among the largest in the developing world — a divergence that reflects global capital conditions, deal timing and the different composition of the two economies’ inflows as much as promotional performance.
