One-stop shops for investment

One-stop shops for investment

A one-stop shop for investment can improve opportunities for private sector development, but not necessarily in the way you might imagine.

In general, a one-stop shop is a place or agency that offers a range of products or services under one roof. The term relates to how many stops or points of contact customers need to make to satisfy their needs. Ideally, the customer makes just one stop. This would reduce costs while improving efficiency and coordination.

There are four reasons to establish a one-stop shop:

  • Enhance coordination across and within levels of government.
  • Provide a holistic, user-friendly and user-oriented service.
  • Integrate multi-policy service delivery.
  • Create a mechanism for joined-up government services.

Easing compliance and boosting investment

Within private sector development, one-stop shops can perform many functions. For example, they can be centres for business information, advice and training.

The most common role for a one-stop shop in private sector development is to centralise and simplify regulatory compliance while boosting private investment.

From an economic perspective, the OECD suggests the main rationale for introducing a one-stop shop is to improve overall economic welfare via reduced transaction costs: “Transaction costs tend to be disproportionately greater for SMEs, and thus negatively affect competition and societal welfare. Separately, there are costs associated with unstructured, difficult-to-navigate government services for citizens. These difficulties provide a justification for improving the provision of various government services where appropriate.”

The concept of a one-stop shop for business and investment came into fashion about two decades ago to deal with administrative barriers by providing a more streamlined and investor-friendly policy environment. The one-stop shop model has been found to significantly reduce the number of procedures and visits necessary to register a business and led to increases in firm registration.

One-stop shops aim to deliver substantial savings in time and costs for users by providing seamless, integrated and easily accessible contact points. This reduces the administrative burden on potential investors by providing information on the necessary steps to start a business in that country or locality.

Because a lack of information hinders the global flow of direct investment, a one-stop shop, whether an office or a website, can help to facilitate such flows.

Many investment promotion agencies have established a one-stop shop to promote private investment opportunities and make regulatory compliance easier. Some interesting examples include Estonia, Nigeria, Portugal, Rwanda, South Africa (which includes interesting links to subnational investment promotion agencies, such as the Western Cape), and Thailand.

One more point of contact for investors

The basic idea of a one-stop shop is that an investor would only have to contact one single entity to obtain all the necessary paperwork in one streamlined and coordinated process, rather than having to go through a labyrinth of different government bodies. However, as Frank Sader from the World Bank Group has said, in practice, “such a mechanism works in barely any country in the world.”

The OECD describes how allowing one agency to grant all licences, permits, approvals, and clearances often prove unworkable. In worst cases, the one-stop shop becomes one more stop, adding to the red tape facing the investor.

The problem is that governments are rarely willing to vest decision-making authority in a single organisation, especially concerning an issue as politically sensitive as foreign direct investment. Line ministries also resist ceding their regulatory authority to another agency. As a result, many one-stop shops have failed to meet expectations and offer little to smooth the processes for would-be investors and businesspeople.

Stimulating business environment reforms

In 2015, I conducted an international review of the literature on business environment reform and investment reform and found that a one-stop shop can provide a useful facilitation mechanism for helping investors navigate the bureaucracy.

One-stop shops for investment can also stimulate reform efforts by allowing the government to become more aware of the problems investors face in the business environment and to open opportunities for dialogue and the identification of reform options.

Thus, on their own, one-stop shops are an insufficient response to the needs of private investors, whether foreign or domestic. But, when combined with a broader business environment reform strategy, a one-stop shop can provide a useful service to investors and a practical interface with the government.

The United Nations Industrial Development Organization argues there is no evidence that a one-stop shop is a magic solution for African investors. Instead, it proposes that investment promotion agencies liaise with relevant government administrative entities rather than trying to internalise all approval and implementation functions. Nevertheless, an investment promotion agency that is conceived as a one-stop shop from the investor’s perspective can play a useful role as a facilitator or mediator in cases of difficulty.

Similarly, the World Bank argues that setting up a one-stop shop is not an end in itself: “It is only a means to an end and should be seen in the context of a wider reform program. Concentrating on how the entrepreneur sees the business start-up process is an effective way of working out what reforms are necessary.”

One-stop shops can focus government efforts

My view is that a one-stop shop facility provides a useful point of focus for governments to think more clearly about how investors and businesspeople interact with government agencies and the legal and regulatory framework. While there are many one-stop white elephants, a government that is serious about creating a more enabling business environment for private investors will use a one-stop shop to improve their interactions with investors.

One-stop shops can provide a useful point of contact with private investors. They can be places where the government becomes more responsive to the challenges facing investors and use its engagement with investors to improve their service to the business community while identifying constraints in the business environment that need to be addressed.