Managing Director & Senior Partner, BCG Henderson Institute Fellow
Related Expertise: Public Sector
Business attractiveness indices have been a key tool in international economic development for decades. Economic development officials all over the world find such indices useful for pinpointing ways to improve their countries’ investment climate. But most of these indices have a critical limitation: they compare performance between countries even though many of the most important economic considerations are local by nature. The fact is that countries seldom grow all at once: often, one region can be decades ahead of another part of the country.
To provide a more nuanced picture, The Boston Consulting Group and the Russian Agency for Strategic Initiatives (ASI) have designed a tool to compare the investment climates within a nation across different regions. Armed with BCG’s Regional Investment Climate Index (RICI), regional economic development officials can gain an understanding not only of how their region stacks up against its peers but also which factors they should focus on next.
Governments can use this insight to adopt target models for improving the investment attractiveness of the country as a whole by focusing on a subset of RICI metrics.
RICI focuses on the investment climate across four main business concerns:
In each area, RICI assesses a number of individual factors such as the efficiency of enterprise registration procedures, the efficiency of government and nongovernmental business support tools, labor quality and availability, and the maturity of small businesses in the region. The model incorporates multiple indicators for each key parameter using a combination of statistical and survey data and expert opinions. In all, RICI assesses 44 parameters.
Local economic development teams conduct custom research using the RICI methodology. But BCG recommends that all RICI-based assessments measure the following for each region:
Indexing a region’s performance is only the first part of the RICI program. The second part ensures that the findings from the assessment are applied.
This stage of RICI includes educational outreach that teaches regional officials how to use the indicators to make their region more attractive to investors. It also provides advice on which practices of leading regions should be adopted by the whole country as well as support in overcoming the political and bureaucratic obstacles that might inhibit constructive changes.
A full-scale education program shows regional authorities how to interpret the findings, find best practices, identify which aspects of their local investment climate need the most improvement, and reach out to counterparts in other regions to learn from their best practices.
Leveraging BCG’s experience with RICI in Russia and our global development experience, BCG sifts through the results of the RICI database and helps set priorities for national and regional change.
BCG not only makes specific recommendations but also works with regional development offices to organize those recommendations in ways that make it easier for them to profit from the insights they find in RICI. This can include designing regional PMOs that are capable of pursuing recommendations in a structured and uniform way.
By drawing on the best practices followed by the leading regions in a country, BCG can create target models of the values all regions should aim to achieve in metrics, such as the time it takes to secure construction permits and the efficiency of procedures for power grid connection. To help regions achieve these goals, BCG designs a framework to monitor and control implementation of the target models and prepares analytical reports for the government on the progress achieved.
Target models can deliver great impact and yield value for a country as a whole. BCG’s monitoring and control framework forms the foundation of the entire implementation process, which, in turn, can help eliminate excessive regulatory procedures, encourage the passage of helpful local regulations, digitalize the preparation of documents, and ensure that the business community is both better informed and more engaged.
How attractive any region is to prospective investors is determined by the answers to two questions:
RICI was designed to help investors answer the first, crucial question positively, and in so doing, encourage regions to make changes that improve their attractiveness.
In the five years since its development, RICI has been proven to work. In the past two years alone, Russia’s use of the tool has catapulted the nation from the 51st to the 35th place on the World Bank’s global ranking of the best countries to do business in. Officials at ASI credit much of those gains to the progress they have realized through the RICI tool.
Using RICI with ASI, BCG developed 12 target models for regions based on the best practices followed by regions leading on each of the 233 RICI parameters in Russia. The targeted values included the quality of informational support of investors and business, the efficiency of cadastral registration procedures, and the support for small and medium enterprises. The regions are projected to achieve these targeted values by the end of 2017 throughout the Russian Federation.
To help regions achieve these goals, BCG designed a framework to monitor and control implementation of the target models and prepared analytical reports on the progress achieved. Following the approach outlined in the framework, BCG gathered data from the regional authorities and consulted both regional independent experts, who verified the data, and federal authorities, who approved the results. This framework was embodied in a specialized IT system called Region-ID. The findings of the report, which are reviewed monthly by the government, showed progress in all of Russia’s 85 regions across all of the 233 parameters that constitute the target model.
Thanks to the enhanced analytics and the more focused development plans achieved through RICI and target models, regional officials in Russia are more certain about the way forward. In many cases, resulting activity in the regions has already increased business confidence there.
Based on RICI’s results in Russia to date, BCG estimates that that the link between RICI ranking and business investment seems to be tightening: raising a region’s RICI score by 1.3 points is now tied to a rise in per-capita private investment of 1%.