The best practices for encouraging business investments can be strengthened by encouraging the authorities and individual companies to engage in a more active dialogue so that there can be more exchange of information and mutual understanding. In many cases, the measures and decisions taken by central government are important as investment criteria at several levels.
Conclusions
The purpose of the audit was to determine how companies would like central government to encourage business investments.
From central government perspective, making investments is not an end in itself. However, a national economy that provides a good environment for business investments, also provides a good environment for economic growth.
According to the Programme of Prime Minister Juha Sipilä’s Government, the aim is to make Finland a competitive country where entrepreneurship, ownership and investment are more profitable than at present. The aim in the audit was to assess how making investments in Finland is viewed by business executives and to obtain new information and new perspectives on the matter by interviewing individuals making the investment decisions in companies (senior management).
A total of 53 interviews were conducted in four countries for the audit. A total of 16 company-specific interviews were conducted in Finland and they were supplemented by interviews with government officials and experts as well as research information and literature. The results of two workshops attended by about 50 experts from companies and public administration were also used in the audit. The audit findings were collected from the following four sectors: mining, pharmaceutical industry, software industry and retail trade.
The experiences of companies are extensively discussed in this audit report and they highlight the need to improve central government decision-making processes and procedures. The best practices for encouraging business investments can be strengthened by encouraging the authorities and individual companies to engage in a more active dialogue so that there can be more exchange of information and mutual understanding.
Central government is competing for investments in global scale
The impacts of global competition are also felt in central government. Many companies are familiar with administrative practices in different parts of the world and many countries are planning to introduce reforms aimed at improving customer service and speeding up the decision-making process in public administration. Even though structural change and macroeconomic instruments are important, Finland and its reference countries already provide companies with an operating environment that meets many of their requirements. For this reason, consideration in the encouragement of investments and competition for investments should also be given to more nuanced criteria.
A number of important factors serving as general criteria for companies’ operating prerequisites have been identified in several studies. They also have an impact on investment decisions, which are based on company-specific criteria. Individual companies evaluate the importance of each of the general factors when making investment decisions. For example, in their own criteria, pharmaceutical companies may not put a great deal of emphasis on Finland as a pharmaceutical market, as from their perspective, it is the potential for pharmaceutical research that makes Finland an attractive investment location.
Even though the overall efficiency of public administration is a criterion for general operating prerequisites, many companies also consider other public administrative performance functions when making investment decisions. For example, for a mining company, the speed of the permit process may be one such criterion. At the same time, corporate legislation or the transport infrastructure may serve as the overall criterion for operating prerequisites. This means that in many cases, the measures and decisions taken by central government are important as investment criteria at several levels.
When deciding on changes impacting companies’ operating prerequisites, central government should not only identify the impacts spreading through the business ecosystem or cluster but also the criteria determining investment decisions by individual companies. In the companies’ view, central government actors do not always remember that business investments are based on project-specific calculations and not on the size or profitability of a company as a whole. In global business, no investment is self-evident and no operating location is secure.
Improvements in general operating prerequisites should have priority over direct business subsidies
Different companies had widely differing views on how general operating prerequisites should be improved. However, most companies had a more negative attitude towards direct business subsidies and considered improvements in general operating prerequisites a better way of encouraging investments. However, the view was that there is a need for direct business subsidies at some point of a company’s or product’s life cycle.
The level of corporate taxation in Finland was considered reasonable and competitive. From the perspective of operating prerequisites and investments, predictability was considered an important factor in all areas of taxation.
Permit processes should be speeded up while at the same time, it should be ensured that the decisions are made on a long-term basis
Permit processes and the appeals processes accompanying them attracted the largest number of negative comments in the interviews with business executives in the mining, pharmaceutical and retail sectors. Fewer permits are needed in the software industry and the experiences with permit processes did not come up in the interviews with the industry representatives. Extensive rights of appeal, inadequate advance guidance, overlapping work by permit authorities in different countries, non-implementation of the one-stop shop principle and the slowness arising from the complexity of the building permit process and the appeals process accompanying it were seen as problems.
In permit matters, companies value the traditional strengths of public administration, such as reliability and adherence to legality. However, for business customers, the quality of the permit administration is also largely a matter of what is achieved and how quickly the decisions are made. In business operations, the windows of opportunity are becoming narrower and for this reason companies also expect public administration to act more quickly. In permit administration and changes to legal provisions, companies expect politicians and the authorities to react more quickly and to make quicker decisions, but also to act in a more predictable manner and on a more long-term basis. Predictability of central government decision-making allows companies to plan and carry out their business operations and make their investments on a more long-term basis. At the same time, quick reaction by public administration allows companies to seize opportunities.
There is broad consensus of the importance of a high-quality education, training and research system
All business executives interviewed for the audit agreed on the importance of a high-quality education and training system in the efforts to encourage investments.
The representatives of the mining companies emphasised the need to offer vocational training for the sector in areas close to the mines. In the pharmaceutical companies, educational and training inputs were seen as a Finnish strengths and the interviewees emphasised the role of a high-quality research environment in attracting investments to Finland. In the view of the software industry, Finland must have a word-class ICT training infrastructure, which will not become reality if such subjects as coding cannot be studied at pre-university levels. The retail companies were of the opinion that as the tasks in the retail sector are changing and becoming more complex, vocational training provided by the public sector is important for ensuring the supply of skilled workforce.
A good business operating environment includes intangible needs that must be met through interaction and not by introducing new regulations
Soft and abstract issues are gradually becoming critical issues. Public administration must take into consideration new matters that are important for companies in today’s world.
The new criteria applied by companies may involve cultural, experience-based and emotional matters, such as customer experience, experimental culture, distinctive street scene, authority services, trust in the authorities and fellow citizens, partnerships between companies and the authorities, and permissiveness.
Such matters cannot be achieved by legislation alone, as they require continuous interaction. There is every reason to emphasise the role of a continuous dialogue between companies and the authorities because business investments involve decisions by human beings based on the best available information.
The National Audit Office recommends that
Permit processes should be streamlined through cooperation and simplification, such as advance negotiations and transfer of routine permits under the notification procedure. The permit administration should be a provider of concrete customer service, in which interaction plays an important role. Ongoing streamlining projects should proceed without delay.
The Ministry of Finance should help to ensure that in administrative development projects, efforts are made to meet companies’ expectations of new partnership thinking in which business investments are jointly encouraged through active communication, while at the same time impartiality of the authorities is preserved.
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