The writer is CEO and executive director of the World Association of Investment Promotion Agencies

The global foreign direct investment (FDI) market is in a period of stagnation, with investors showing caution amid rising protectionism and geopolitical tensions. And despite corporates’ increasing focus on sustainability and a desire to invest in projects and sectors that support the UN Sustainable Development Goals (SDGs), developing countries face an annual SDG investment gap of $4tn, according to UN Trade & Development.

In the face of these complexities, there is an urgent need for investment promotion agencies (IPAs) and other government authorities to identify, package and showcase investable projects, especially in high-growth areas such as renewable energy, technology and critical infrastructure.  

The phrase that has emerged for projects that have been properly vetted and subsequently deemed investable are Investment Projects Ready to Offer (IPROs). IPROs should be financially viable, backed by local or national authorities, supported by clear regulatory frameworks and verified by credible technical studies. 

Investable project formula

The size of the SDG investment gap is ramping up global efforts to build pipelines of IPROs. At a recent event hosted by the World Association of Investment Promotion Agencies, Stefan Kratzsch — head of the sustainable investment and responsible business unit at United Nations Industrial Development Organization — outlined four critical steps to making a project investible. 

First is the identification of the investment opportunity, potential investors and other participants, and the underlying business concept. Second is preparation, which involves market and technical studies to support a financial analysis of the project, as well as an economic analysis to measure the impact on the host country should the project materialise.  

The third step is appraisal by investors or other stakeholders, based on their commercial criteria. The outcome of this process determines whether to proceed with the project. If it is not securing investor commitments at first attempt, it is necessary to revisit the preparation phase.

The final step for projects that garner enough investor support is implementation, which involves operational and technical planning, and — depending on the nature of the project — detailed engineering work.  

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• IPA Roundtable: European investment promotion goes private
• Are investment promotion and sustainability friends or foes?

Essential studies

A crucial part of the process is the technical studies carried out as part of the second step, and they must be properly budgeted for at the outset. This step begins with a so-called opportunity study, which provides a preliminary exploration of the project’s potential. It relies on knowledge and information that is already at hand or readily available from secondary data. 

Next, pre-feasibility studies assess the overall potential of the project and can help decision-makers determine whether the project is technically, financially, economically, socially and environmentally sound. Based on the results of the opportunity and pre-feasibility studies, some basic assumptions about the project might be modified, such as the site, or it could be decided that it is not feasible after all. 

Finally, a feasibility study provides a more extensive, in-depth assessment and forms the basis for a detailed appraisal by the potential investor. This process may lead to further iterations or changes of the feasibility analysis. The costs of a full feasibility study is often many times that of the pre-feasibility study costs; therefore, cost rationalisation is important. 

Time and money

Much hard work, and a share of IPA’s often limited financial resources, are required to get projects investor-ready. And it is tempting to skip some of these steps. However, putting in the work to create a viable pipeline of IPROs will pay dividends many times over. 

Investors have capital to deploy and a desire to invest in SDG-friendly projects, but often complain about a lack of investible projects. Meanwhile, IPAs have an imperative to attract this type of investment. But there is often a mismatch between what investors consider attractive and viable, and what IPAs — and governments generally — offer them. Resolving this mismatch is essential to meeting global development objectives, bolstering vulnerable economies and making IPAs even more effective in supporting local economic development. 

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