WHAT CAN (OR SHOULD) FOREIGN MISSIONS DELIVER ?

What is the role that embassies and consulates can (or should) play, as the public service overseas outposts of a country, to help the real actors of economic diplomacy, the home enterprises and businessmen. In particular, is there a special role that they might play when they represent developing countries, to the extent that this is different from the role played by the diplomatic and commercial missions of rich states?

In relation to trade or investments , it is often the initiative taken by embassies and consulates that often provides the initial impetus. Equally, it is not difficult, for the great part, to motivate home agencies, be it the promotion bodies, such as export councils, or trade associations, and of course the business enterprises. Often it is the mission official on the spot, who identifies an opportunity and flags it for action. This is especially true of the initial phase of the external economic action cycle.

All countries now treat economic promotion as a high priority. Many entrust this work to the diplomatic service, while others handle it exclusively through specialist commercial services, or ‘trade commissioners’. The detachment of commercial from other diplomatic work sometimes reduces attention to investment mobilisation, and country promotion; one also misses the cross-connections of integrated diplomacy. Countries that do not practise ‘integrated diplomacy’, nevertheless link economic and political work at the apex, giving the ambassador overall charge.

No one has analysed if entrusting political, economic and all other diplomatic tasks to one single set of officials, who rotate between these jobs, works better than having specialists for each work area. For one thing, in small establishments this separation just isn’t workable. Similarly, in small embassies, where an ambassador may have only one or two diplomats assisting him, everyone pitches in to handle the full range activities, including consular, cultural, information, and diaspora outreach tasks, besides political and economic work.

Trade Promotion

A high economic priority for virtually every country is export promotion. While facilitating the expansion of existing export product lines is an obvious concentration area, it is in the promotion of new export products , and the exploitation of new markets that embassies can provide special help to home enterprises.

For developing countries, external markets pose several kinds of problems. First, home exporters do not know the basic environment in foreign states, and do not have the capacity to invest in exploration, much less pay consultants to advise them on entry strategies. Associations of exporters at home confront a like problem, though on paper they should be able to carry out market surveys and the like.

Second, foreign regulations on safety and environmental standards, and other norms laid down by potential markets are little understood by home exporters, and pose real nontariff barriers (NTBs) to entry.

Third, home exporters lack credibility with potential foreign customers, and this becomes a chicken-and-egg syndrome, making it difficult to break this cycle of unfamiliarity.

In such situations, the diplomatic mission engaged with commercial promotion has its work cut out. The simple kind of things it needs to do include the following.

• Informing home business associations and individual enterprises on the basic economic conditions in the target country – Such ‘country notes’ are available on the websites of the bigger countries and one needs to simply adapt these to one’s needs. This is a useful first step, and connects with producing sector-specific guides for home exporters; commercial officials are seldom well trained in such tasks – and clearly this should be a priority in training programmes – but it is possible to learn on the job, and the very act of undertaking such tasks becomes a learning process.

• Analysing the potential markets for the home country – A simple method is to match the export basket of one’s country with the import basket of the target country; this identifies the potential, the more so when it is matched with actual exports from home to that market. Next, one needs to identify the potential competitors and analyse their products that reach that market. That provides clear indication of the areas where one might concentrate, provided the price and other conditions are suitable.

• In parallel, contact has to be established with the importers of the selected products or services, and sensitise them on what the home country might offer – Often, this involves persuading them to visit the home country; it also helps to put potential importers in contact with existing local importers of other products, to overcome potential hesitation and other obstacles.

• Credibility is also built when home exporters and manufactures take part in trade shows in the target country – There is a whole set of craft skills pertaining to successful trade-show participation overseas It is often best to join an established trade show, rather than hold a single-country special event; in attempting the latter in an advanced market the key problem is always to get the right clients to come to one’s event. In countries where a trade show culture is yet to built up, or when one has a politico-economic compulsion to make a splash, it may also pay to hold one’s own .

• One option, not often tried out, is to permit an exporter to hold a small buyer-seller show on the premises of the embassy or consulate, if necessary, charging the exporter for any additional direct expense for this purpose – The larger embassies now have their own small trade centers that can host such events. This adds to the credibility of the exporter and also incidentally builds the embassy’s contacts with the home enterprises. All too often, government agencies miss out on the perspective of their domestic customers.

Visits by business delegations are a key method for export promotion and for FDI mobilisation – such visits can transform the perception of key decision-makers. The embassy’s professionalism is visible in the way such visits are planned; the effort to create a broad catchment of potential business partners eventually narrows down to a handful, for first business contacts and trial orders. It is the one-to-one meetings that lead to business, and this hinges on effective ‘matchmaking’ between the buyer and seller. On the other hand, when the exporter from home has built up business contacts, and aims at expanding business, the task is in many ways easier, in that the home exporter has already a good handle on his prospects, and needs little more than marginal or incremental help from the embassy.

• In a bilateral relationship, each country takes care of its own export promotion – it is useful to remember that there exists a duality in commerce, the fact that countries are both exporters and importers. Thus helping with trade on a total basis makes good sense. That applies particularly to problem-solving, that is, in relation to helping business partners to resolve trade disputes. The old prescription might have been that official agencies might mainly act as facilitators, urging the disputants to work for solutions. Economic relations cannot advance if businessmen do not have confidence in one another’s capacity to overcome problems as they come up, in the normal process of trade.

Investment Promotion

Mobilising FDI for the home country is the other major leg of economic promotion. The same mix of issues comes up as with pushing exports: establishing credibility; finding the first breakthrough; cultivating potential investors from the target country; organising business delegations; taking part in investment promotion events, and the like. Some of the embassy tasks are:

• Cultivating business chambers and industry associations on a permanent, ongoing basis is essential, especially when local companies are unfamiliar with the partner in an investor role.  Embassies can facilitate visits by business and eco-political delegations from the target country. The latter especially includes visits of delegations led by ministers and local or provincial leaders, who very frequently now take with them business delegations. It is not sufficient to say that the embassy of the counterpart country will take care of such visits; the embassy’s contacts and credibility hinge on how effectively it supports such visits and smoothens their path.

• Even more than in the case of trade, investors are attracted by ‘success stories’ the more when they are narrated in honest terms by other foreign investors. Everyone expects the country seeking FDI, be it at an investment-promotion seminar or at a large business conference, to say good things about their home country. It is the narratives from other investors that are listened to with special attention. The embassy should invest effort into searching out such exemplars, and bringing them on board in their investment mobilisation efforts.

• World Bank studies, and the experience of successful investment promotion agencies has shown that the clinching element in investment promotion is sustained cultivation of selected target companies – sometimes called the ‘rifle shot’ method. Effort goes into making the determination as to the best targets to pursue; home agencies can help in this, if they have the skill and inclination, but even without that the embassy can act on its own initiative, using common sense, combined with real understanding of the scene in the target country.

• Embassies can also play a key role in improving the ‘conversion rate’ between investments that are approved by home authorities, and those that are typically implemented. Part of the reason for this gap between the two is that even after approval, some foreign companies take time to move forward with the investment project; some projects are abandoned if business plans change. The essential element is for the embassy to be in the information loop from the outset, when projects of a certain size are approved at home. In many countries, this simply does not happen, and it is part of the hiatus between the MFA’s system and the other branches of government.

• As economic development moves forward, countries that were primarily recipients of FDI slowly morph into exporters of capital, venturing out to external markets with their own FDI. To start with, developing countries tend to focus on countries less developed than their own. Embassies usually do not have a large role when the FDI goes to developed markets.

Generally speaking, in a globalised world, the principal actors handle mergers and acquisitions abroad in close confidentiality. But missions have a role in assisting to sustain an enabling environment, with discreet intervention as needed by the home enterprise. These points connect with the issue of country image.

• Sub-state entities, such as provinces, cities and regions, and parts of countries often conduct their own activities to attract FDI. Embassies play a large role in dealing with these actors, assisting their delegations and dignitaries, both inbound and outbound.

All countries and regions, rich or poor, strive to attract investments, given that it contributes to economic growth. Besides FDI, ‘portfolio investment’ and other forms of indirect investments that come in through the stock market or as private-equity contributions are also sought, but they have a lower priority because such investments are more volatile. Funds from abroad, invested in the home-capital market move in and out with rapidity, and are in the nature of fair-weather friends. They have a positive role, but are usually not the focus of promotional efforts.

Technology Acquisition

This is an understated area of promotional activity, not because it is unimportant, but rather due to the fact that it is usually the principals, i.e. the enterprises seeking or selling their technology that are in the best position to know their external market, and diplomatic missions are usually not in a position to do more than setting up an enabling environment, or to help resolve problems. In the larger embassies that have science attachés, it makes sense to involve them with investment-promotion actions, and to harness their technical knowledge to identify the sectors that should be a priority, for inbound and outbound business delegations. Usually, technology comes in with FDI flows, but in some cases a foreign partner prefers a lower form of collaboration, the technology or licensing agreement. This can be a major vehicle of partnership, and sometimes serves as a prelude to financial investments.

Aid Management

In countries that are donors or recipients of external aid, the diplomatic establishment has a role to play. An increasing number of developing countries play both these roles. It is rather seldom that inbound aid is handled in the foreign ministry; usually it is the planning ministry, or finance, or an economics ministry that handles this task. In such situations, embassies keep up regular contact with the donor establishments in the country of assignment, but play a rather small role on substantive issues. But in relation to outbound aid, embassies identify potential projects, for financial and technical aid, and help monitor the implementation. Few developing countries have full-time aid specialists in their overseas embassies, though in the case of developed countries that are major donors, recourse to such specialist staff is the norm.

Now that overseas funding is increasingly delivered via NGOs, in both the donor and recipient states, contact with such organisations is a priority task for embassies. That has the incidental advantage of widening the contacts of embassies, and deepening their understanding of socio-economic dynamics in foreign states.

Aid diplomacy also intersects with commercial diplomacy in the leverage it provides for trade, service and investment opportunities for the donor country. Thus export credits, as well as loans and grants given as ‘official development assistance’ (ODA) are directly linked with business for the donor, or have an implicit connection, even if in nominally such aid is ‘untied’. This also entails close connections between embassies and home enterprises, to suggest the projects, services and equipment to be furnished.

Regulatory Environment

The increasingly managed nature of trade and other economic relations directly involves governments in issues that did not figure in bilateral and multilateral dialogue in the past.

Building Partnerships

There are three major tensions that are the drivers of today’s commercial and economic diplomacy. These are between: political and economic issues; state and non-state actors (NSAs); and public and private entities. Most of the activities sketched above entail extensive interactions between the official diplomatic establishment and non-state actors, both abroad and at home. Abroad, the non-state partners include: business associations, plus enterprises that are engaged in economic interactions; think tanks, universities, and institutes, not to forget business schools; media institutions; local associations that have connections with the home country, including groups of returned students and friendship associations; members of eminent-person groups and other friends, and in effect any organisation that has the will and capacity to help. At home, the same spectrum of agents is available. The very act of engaging such actors opens up prospects for the embassy to widen its connections, and work with them as much for economic as for other activities. All too often, it is the cross-connections between actors helping outside their main action areas that produce that synergy on which building bilateral relationships today hinges.

The diaspora can be a key associate in economic diplomacy, as research and the personal experience of most diplomats bears out. In the countries where they are present in large numbers, this is self-evident. We see this in the role played by them at individual and at group levels. Even in foreign capitals where only a handful of local resident compatriots are to be found, they are partners of choice, for the local knowledge they possess, and the leads they can provide in relation to opportunities, be it in the economic, cultural, or even the political arena.

Economic diplomacy connects closely with the country brand, because a country’s trade and investment destination profile both contributes to, and is influenced by the reputation that the country enjoys internationally. Foreign ministries and their agents, the network of embassies, are directly concerned with this. It is another matter that in many developing countries a ‘whole of government’ approach either does not exist, or is under evolution. Image-building takes many forms, and works especially well when it takes the shape of ‘PPPs’.

Final Point

First, any kind of proactive action involves the risk of failure, or the possibility of being unable to achieve fully the set objective. That might lead one to conclude that inaction is risk-free, though in reality, inaction is as much a response as anything else; alas, most public administration systems do not identify, much less levy sanction against, the sins of omission.

A good system ought to encourage proactive actions; it should guide its officials towards good judgment, through training and sound mentoring.

Second, motivation is at least partly connected with reward. While the very best officials are self-driven, some recognition for outstanding performance is good for any system. A good performance management should indirectly help to strengthen economic diplomacy.