Essentially, the very words “capital” emphasize the central role that a place plays in its country. A capital should be a hub for many industries and large-scale economic activity, as is the case in London, Paris, Tokyo, Seoul, Riyadh, Cairo etc A capital city should also be expected to attract the lion’s share of a country’s FDI. However, this is not always the case.
The aforementioned capitals are the main economic engines of their respective countries. International companies are flocking to these sites in droves, creating specialized industrial clusters, which in turn encourages even more foreign investment. In contrast, there are other capitals that struggle to achieve peak status in their home countries. These places have become the forgotten capitals of FDI.
Ottawa struggles with strong Canadian offer
Canada has a long history of attracting foreign direct investment (FDI) thanks to its business-friendly environment, talented workforce, and impressive infrastructural ties, not to mention its proximity to the United States. However, it is Canada’s most populous city, Toronto, that has become the country’s hub for FDI, not the capital Ottawa. Indeed, Ottawa is outmatched when it comes to attracting foreign investment not only by Toronto, but also by Vancouver, Calgary and Quebec.
Toronto was the only Canadian city to be among the 20 shortlisted cities for Amazon’s prestigious HQ2 project, worth an estimated $2.5 billion. Vancouver also caught the eye of the e-commerce giant, which signed a deal to lease the city’s largest office space, a deal that reduced the city’s projected office vacancy rate by 2%. The investment will create approximately 3,000 new jobs and see other investors view Vancouver more favorably. This mega-investment (and the resulting FDI) is something Ottawa desperately needs.
By the time Amazon’s investment was announced in Vancouver, in 2019, Ottawa offices had a higher vacancy rate than Toronto and Vancouver combined, and his rent was on average nearly 40% cheaper. This begs the question: what are the main economic drivers are businesses wondering if high vacancy rates and low rental costs can attract them?
If it is a skilled workforce and access to a solid clientele, then Ottawa is also well placed to meet this criterion.
The city offers a talented workforce of more than 750,000 people and wishes to establish itself as a center of expertise in telecommunications. The city’s investment promotion agency, Invest in Ottawa, calls the capital “one of the most dynamic and diverse technology hubs in North America” and underlines the advantage of its geographical position as a gateway to other key markets. Real estate and investment firm CBRE reports that there are nearly 20 million people within a 400 km radius of Ottawa, compared to 10 million for Montreal and 15 million for Toronto, highlighting the potential the city has to offer both in terms of labor and proximity to customers. However, data shows that the capital struggles to match the appeal of its Canadian counterparts.
Jerusalem remains in the shadow of Tel Aviv
Despite the almost constant instability and conflict in the country, Israel has managed to carve out a place for itself as a “start-up nation” and now prides itself on most start-ups as well as the highest level of venture capital per capita. The country has experienced steady economic growth since the early 2000s and increasing levels of FDI since 2015 (until the Covid-19 disruption).
Jerusalem, the capital of Israel, unquestionably imposes itself as its religious pole, but it is Tel Aviv which has been the main beneficiary of the country’s economic recovery.
Tel Aviv and surrounding areas are now home to more than 50 tech unicorns (private start-ups valued at over $1 billion), including Gong and Ocra Security. The city has also been favored by many Fortune 500 companies, with PayPal opening a fraud and risk detection center there, and Facebook opening of an office, followed by a ‘Playground’ in 2019 to serve as a bridge between global clients and local start-ups.
The presence of technology giant Microsoft in Tel Aviv is another example of the city’s attractiveness to multinationals. The company has steadily invested in Tel Aviv over the past few years and recently opened a mega-campus in Herzilya (located in the northern district of Tel Aviv) with plans to create 2,500 new jobs.
Michal Michaeli, director of international economic development at Tel Aviv Global, a municipal tourism department in the city, points to the importance of Tel Aviv in the Israeli tech sector in particular. “It’s really remarkable how central Tel Aviv is,” he says, adding that the city “has 20% of the tech workforce in Israel and creates 50% of the business in fundraising and going out. In a word, it’s mind-blowing. »
Jerusalem has attempted to distance itself from the ongoing and unresolved political issues facing Israel and has made efforts to modernize its image as a rising technological power. However, with so much attention (and investment) poured into Tel Aviv, Jerusalem has its work cut out.
Justin Taub, managing partner of Hetz Ventures, a venture capital firm specializing in Israeli start-ups, says: “Everyone knows that Tel Aviv is the heart of the start-up nation, but the data shows that more than 50% of all funding goes to businesses in Tel Aviv, while no other city even comes close to 10%. Jerusalem-based companies represent only 3% of investments today.
In the past, many companies did not view Jerusalem as a desirable location for FDI, primarily due to the instability associated with the city. However, there are signs that it is slowly beginning to emerge from Tel Aviv’s shadow. In 2021, the multinational technology company Nvidia Corporation announced its intention to recruit from several Israeli locations, including Jerusalem, while Microsoft, even with its foundations in Tel Aviv, would show an interest in the Israeli capital. The company has confirmed that it will establish a new development site by the end of 2022 and wants to tap into the talents of “underrepresented sectors, such as ultra-Orthodox Jews and Israeli Arabs”.
Istanbul (not Ankara) for Turkish FDI
Turkey undoubtedly has many favorable qualities to attract investors. It offers a large working population, access to natural resources, solid infrastructure and close proximity to several key international markets. Its geographical position has allowed the country to present itself as “where East meets West”, offering multinational companies the best of both worlds.
Turkey’s most popular FDI source countries are the United States, United Kingdom and the Netherlands. In 2020, Dutch FDI in Turkey had reached $25.7 billion, nearly 16% of the country’s total FDI inflows. Despite the country’s rich promises, FDI to Turkey peaked in 2015 and has since been on the decline. Figures for 2020 show a 58% drop from the 2015 peak and a 15% drop from 2019.
The country has been working to attract more global companies, with a focus on financial services, energy, manufacturing and, more recently, defense operations. Yet Ankara, Turkey’s capital and second city, has largely failed to attract investor interest.
In 2015, Nurettin Ozdebir, the director of the Ankara Chamber of Industry, told local news agency Anadolu: “Ankara is becoming a high-tech hub, with local innovation overtaking that of Istanbul”.
Seven years later, it should therefore be possible to see signs of Ankara challenging Istanbul’s supremacy to attract investment. However, there is little evidence of this.
Istanbul, Turkey’s most densely populated city, continues to attract the bulk of the country’s investment. Coca-Cola maintains its local headquarters in Istanbul, Swedish telecommunications company Ericsson recently opened a new research lab in the city, and German food delivery company Delivery Hero chose Istanbul as the location for its new technology center in September. 2021. Company chief Christian Hardenburg, chief executive, explained that the investment will create 1,000 new jobs, adding that the opening of the new hub will enable the company “to accelerate global innovation plans, by tapping into a vibrant tech scene and a vast pool of talent.”
Such an investment would have been welcome in Ankara, given its desire to be recognized as a technological hub. Ankara has the highest percentage of jobs in the high-tech sector in Turkey at 2.48% and more than 240,000 university students. Additionally, more than 50% of Ankara’s population is under the age of 32, allowing an abundance of manpower for future projects.
Turkey appears keen to gain momentum when it comes to attracting foreign investment and has hosted a roundtable with the leaders of major US based companies in May 2021, in an attempt to strengthen partnerships between the two countries. Participants included Kellogg’s, Google, General Electric, Varian Medical Systems, PepsiCo and Netflix, among others. It remains to be seen whether the lull in FDI in the country could work in favor of Ankara. As Turkey continues to make a conscious effort to encourage investment, the benefits Ankara has to offer may become more apparent to potential international businesses.
All investing involves an element of risk. It’s normal for companies to be cautious when entering lesser-known territories. The question remains though, are they too cautious? Capitals such as Ottawa, Jerusalem and Ankara are overlooked in favor of better-known locations, despite all the necessary credentials and, more often than not, cheaper land and labor. There’s no reason why the three capitals above shouldn’t attract more FDI, but investors seem more comfortable with their more established or fashionable domestic rivals, and reversing that seems a long way off. . All this means that investors and those forgotten FDI capitals are absent.