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Investment in Manufacturing or Energy: The Americas

There is an emerging trend among the individual states in the U.S. to support investments, mainly from abroad, realizing all the economic and social benefits it brings to their regions. Below we present some examples of how the U.S. states have attracted investment into the manufacturing sector.

1. Financial Packages Remain Priority

  • According to data from the U.S. Bureau of Economic Analysis, international companies are employing more than seven million Americans, and this makes foreign direct investment (FDI) economic priority for most of the U.S. states. The governors have been working on a number of financial initiatives to attract and retain investors in their region. While lots of factors are important, financial packages seem to be the most well-known strategy to engage investors.
  • Some U.S. states are known to provide great services to companies that invest in their area, also after an agreement has been made. The governors of Connecticut, Georgia, Indiana, South Carolina, and Wisconsin were against the new federal tax reform law that was implying a tax increase on companies established in their states. The governors along with the local authorities tried to force apart legislation to save the investments in their regions.
  • Back in 2012, Michelin had agreed on an incentives package presented by the state of South Carolina. The package included a financial help of $7.5 million from the South Carolina Department of Commerce, and an additional aid of $325,000 from local agencies. Michelin agreed at that time to expand its current tire plant and create a new plant that would bring more jobs.
  • Similarly, Hankook, a South Korean tire manufacturer received a financial package of $120 million in 2014 from the state of Tennessee and the city of Clarksville. In return, Hankook created 1,850 new jobs and invested $800 million. The state’s funding was for a training center and the construction of a Korean cultural center in Clarksville.
  • A recent incentive that is expected to bring more investments is the opportunity zones. Opportunity zones are census tracts generally composed of economically distressed communities that qualify for the Opportunity Zone designation according to criteria outlined in 2017’s tax cuts and jobs act. According to this initiative, investors are allowed to take the profits from the sale of an asset such as a building or business located in one of these census tracts and defer taxes on those gains until 2026.
  • One example of how U.S. states and companies can take advantage of the opportunity zones is Amazon’s decision to co-locate its headquarters in northern Virginia and Long Island City. Long Island City has been marked as an opportunity zone under a provision of US tax reform measure. Nan Fung Group is implementing a similar strategy by developing a new warehouse in the same area.

2. Non-financial Incentives Gain Momentum

  • Financial benefits and tax credits are very important, but are not the only factors attracting investors. Non-financial incentives such as infrastructure investment, and access to development sites are equally beneficial. A survey on companies considering expansion or relocation found that labor availability was the top priority above of tax exemptions and incentives.
  • Some U.S. states have worked on their infrastructure in order to attract more investors. These efforts can drive long-term growth and competitiveness that could lead to further investment in the future from the same companies or similar ones. For instance, South Carolina hosted the first BMW’s plant outside of Germany, after ensuring a new employment-training program for the workers of the region and the extension of the Charleston International Airport. This deal changed the state’s automotive-manufacturing supply chain.
  • The state of Virginia managed to convince Amazon to remove part of its headquarters in the region, after it promised $300 million in infrastructure investments, including a face lift of its subway stations.
  • According to a research, 69% of the U.S. citizens believe that paid parental leave is important, but only 17% of employees in the U.S. have access to this benefit. The state of Tennessee announced in January 2020 that it will provide paid family leave for all state employees. This measure will improve the quality of life for locals both at work and at home. Investors and manufacturers pay attention to this kind of actions as are expected to have a positive impact on the productivity of the employees.

3. Strong International Relations Attract Investments

  • It is crucial nowadays for governors to create deep and strong relationships with foreign partners in order to convince them investing in their region. A good example of this strategy is governor Abbott who visits regularly foreign countries to discuss new business development and trade ties and opportunities that could encourage investors to spend money back home. A successful trip was to India in 2018, where he managed to close several deals with companies like Wipro, one of India’s biggest tech companies,
  • Florida has expanded its presence outside of the U.S. through its 15 international offices in 13 countries. The state of Florida also attends exhibitions such as MEDICA and Arab Health, with a view to meet new investors.
  • In 2018, while U.S. and China were involved in a trade conflict that was affecting both countries, U.S. governors were willing to boost cooperation with China and improve relationships with Chinese business executives. Gary Herbert, the governor of Utah, said that the state has experienced a remarkable growth after it started working with China. Moreover, Arkansas has launched an incentive program for Chinese investors that includes tax reductions and easing regulations. Since 2003, when China first invested in Arkansas, the state has seen more than $2 billion investments from Chinese firms, along with the development of 1,600 jobs.

Research Strategy

We managed to gather insightful information regarding the U.S. states. During our research we found that state-level governments implement a variety of strategies to attract investors, but financial packages remain a continuous trend and top priority for investors. To identify other examples we visited the trade press, government websites and reports provided by consulting agencies. While intense networking is a traditional tactic, we saw that is more important nowadays than before. Incentive programs that focus on people development and better infrastructure are a prominent trend.

Investment in Manufacturing or Energy: Global

While traditional tax credits and business incentives are consistently utilized to attract manufacturing and energy investments, municipalities and government business organizations are utilizing more narrowly tailored and innovative methods of incentivization to attract businesses that fit their unique community needs. Globally, municipalities are seeking to attract green energy investments, specifically in areas bound to the Paris Climate Accord. Additionally, a myriad of organizations is focused on recruiting companies that complement their existing or anticipated business network to promote collaboration across industries.

1. Green Energy Investments via Flanders Investment and Trade

  • Flanders Investment and Trade (FIT) is the investment and business arm of the Flanders, Belgium government.
  • Flanders is one of the major politically defined regions of the federal state of Belgium and is represented by a single council. When it comes to Belgium’s energy sector, the primary responsibility is under the regional authorities, in which FIT is handling.
  • FIT has taken a multi-pronged approach to entice investment into green energy throughout Flanders, including the promotion of cluster organizations to promote research and innovation, access to multiple funding sources, and the issuance of green certificates.
  • Cluster organizations are organizations that provide mutual benefit to one another such as energy, IT, and building companies. Organizations that participate in this program include VITO and Imec which are focused on energy technology development and nanotechnology respectively.
  • Flanders’ “smart financing” options include government grants and subsidies, tax incentives, employment subsidies, and a variety of creative financing options.
  • Green certificates are provided through VREG, which is the independent authority for the local energy market. These certificates provide support for companies utilizing or producing energy from renewable sources. These certificates can be sold or purchased by companies to meet renewable energy obligations established by the Belgian government.
  • The most recent company enticed to Flanders via these incentives is Vleemo which is building a large onshore wind energy park.
  • As a result of these incentivization strategies, Flanders has the third-highest number of solar panels per capita and the largest onshore wind energy park. Additionally, Flanders is ranked number four in global workforce productivity, number two in Europe for innovation, and number eight in the Global Workforce Happiness Index.

2. Shizuoka Industrial Cluster

  • Shizuoka is a manufacturing prefecture in Japan making up approximately 5%, or 16.507 trillion yen, of the total shipment value of manufactured products from Japan.
  • Shizuoka offers a variety of incentives including subsidization of 50% of office rent during the first year of operation for foreign-affiliated companies, subsidies for newly built or expanded facilities, and land acquisition for manufacturing facilities.
  • Due to the high value of manufactured products and proximity to core distribution areas, Shizuoka has relied heavily on reducing the financial burden of starting or expanding facilities as its key incentive.
  • Between 1989 and 2015, business incentives offered via the Shizuoka Industrial Cluster have enticed 20 foreign-affiliated companies with a total facility area of 1,000 square meters or larger and at least 50% investment from foreign capital.
  • In addition to traditional manufacturers such as Triumph International, Molex Japan, and TE Connectivity, businesses utilizing incentives offered by Shizuoka are primarily focused on manufacturing in the pharmaceutical and medical equipment sectors.

Saskatchewan’s Industry: Mining

Saskatchewan’s mining industry is considered the second-best in the world; as such, it is also one of the strongest mining sectors in Canada. Its friendly regulatory environment and abundance of mineral wealth contribute to its strong position as a regional and global leader in the mining industry.

Saskatchewan Position in the Canadian Mining Industry

  • Saskatchewan’s mining sector is one of the strongest in Canada. Among its four immediate provincial neighbors (Alberta, Manitoba, Nunavut and the Northwest Territories), Saskatchewan is the only one mentioned as being one of the “top growth provinces in terms of mineral production value.”
  • Relative to growth, Saskatchewan has a recent history of high YoY production value gain. In 2016, it gained more than $1 billion CAD, putting total production value gains at over $8 billion CAD in the same year. In comparison, Nunavut’s entire mineral production value in 2019 was a little more than $1 billion CAD. That of the Northwest Territories was less than $2 billion CAD.
  • Saskatchewan is the only uranium-producing province in Canada. Recently, its key mining products — uranium and potash — have been experiencing lower demand in the world market, which could weaken its regional strength if its diversified mineral products don’t offset power demand for its main mining products.
  • Saskatchewan’s friendly regulatory environment is highly competitive compared some its neighbors, including Manitoba, which has high tax rates and low provincial budgets for exploration. A friendly regulatory environment is one of the factors used by the Fraser Institute to determine the best sectors for mining investment. However, it should be noted that Alberta has a similarly-friendly regulatory environment, fostered in part by low tax rates in that province.
  • Measures taken by Saskatchewan province to attract investment to the mining sector include drilling cost rebates, tax rebates and a 10-year royalty holiday for new mines, all of which contribute to its high position on the Fraser Institute Annual Survey.

Factors Influencing Saskatchewan’s Mining Strength

  • An abundance of mineral wealth factors heavily into Saskatchewan’s mining industry leadership, both among its neighbors and globally. Saskatchewan has vast reserves of potash and uranium; it also mines a significant amount of gold and still has under-explored gold potential areas. The largest potash mine in the world is located in this province.
  • Saskatchewan’s provincial government has created a favorable regulatory environment for mining, which includes a clear and straightforward permitting process and a “mineral leasing system which compares favorably to other jurisdictions.”
  • The indigenous communities of Saskatchewan are open to mining development, which provides additional oversight on the sustainability of Saskatchewan mining operations.

Saskatchewan’s Industry: Manufacturing

Saskatchewan’s manufacturing sector has one of the highest growth rates in the country. It had the second-fastest growth rate among the provinces between 2008 and 2018. Its central location, easy accessibility, and competitive tax structure are some factors contributing to its rapid growth rate.

Overview

  • Saskatchewan’s manufacturing sector is “currently experiencing one of the highest growth rates in the country.”
  • Saskatchewan’s manufacturing real Gross Domestic Product grew by 30% between 2008 to 2018.
  • The province had the second-fastest growth rate among other provinces between 2008 to 2018.

Metrics

  • Saskatchewan’s manufacturing sector’s share of provincial GDP was 6.2% in 2008. “This increased at an average growth rate of 2.1% per year from $4.3 billion in 2008 to $5.3 billion in 2018, making it the second among the provinces,” behind Prince Edward Island at 3.9%.
  • In 2018, its manufacturing GDP “increased by 5.1%, the highest growth rate among the provinces from 2017.”
  • The province had the second-highest ($90.33 in 2018) productivity (real GDP per hour worked) in the manufacturing sector among other provinces. Alberta’s productivity was $104.75 per worked hour, Ontario’s was $67.10, and British Columbia’s was $60.04.
  • The value of Saskatchewan’s manufacturing shipments “increased from $13.2 billion in 2008 to $17.9 billion in 2018.”
  • It had the third-highest manufacturing shipments with an average growth rate of 3.1% a year between 2008 and 2018. “This was above the national average of 1.5% and ahead of Manitoba (+1.7%), and Alberta (0.9%).”
  • In 2018, Saskatchewan’s manufacturing sector had the second-highest amount ($1,158.11) of weekly employee earnings among the provinces.
  • Its manufacturing exports had an average growth rate of 4.1% per year between 2008 and 2018. The “second-highest among the provinces behind Prince Edward Island (+7.4%), British Columbia (+3.8%), Manitoba (+3.0%), and Alberta (+2.1%).”
  • Saskatchewan had the fifth-highest manufacturing revenue behind Ontario, Quebec, Alberta, and British Columbia.
  • In 2017, the manufacturing sector’s revenue grew by 13.5% making the province rank third among the provinces behind New Brunswick (18%) and Newfoundland and Labrador (15.9%).

Influential Factors

Saskatchewan’s Industry: Energy

With its world-class research facilities and a strong network of suppliers, opportunities abound in Saskatchewan’s oil and gas industry. The province also enjoys a stable and transparent energy regulatory environment with a supportive government, adding to its investment attractiveness. Saskatchewan, however, levies the highest taxes on new investments in oil and gas compared to its neighboring provinces and all the North American region, which negatively impacts its investment attractiveness.

Saskatchewan´s Energy Industry Sector

  • Saskatchewan is one of the few places in the world that produces all of the following types of energy: crude oil; natural gas; coal; uranium; biofuels; geothermal power; wind power; and hydro-power.
  • Oil: The province produces the second-largest amount of oil in Canada and the sixth-largest in Canada and the United States, producing 178.4 million barrels in 2018.
  • The province has an estimated oil reserve of almost 1.2 billion barrels, refining and upgrading capacity, and an extensive network of pipelines.
  • Natural Gas: The province produces the third-largest amount of natural gas in Canada, producing 184 billion cubic feet in 2018. The province’s estimated recoverable gas reserves are 1.8 trillion cubic feet.
  • Nuclear Energy and Electricity: Saskatchewan is the leading global supplier of uranium, exporting 90% of its production. The remaining 10% is used in fuelling nuclear reactors in Canada. The province’s uranium supply powers approximately 1 in 20 homes in the United States.
  • Clean Coal: The province is committed to adopting ecologically-friendly energy resources, evident in its expertise in clean coal technologies.

Saskatchewan and Other Canadian Provinces in the Energy Industry

  • According to a report by the Fraser Institute, Saskatchewan levies the highest taxes on new investments in oil and gas compared to its neighboring provinces and all the North American region, which negatively impacts its investment attractiveness.
  • According to the 2018 global petroleum survey by Fraser Institute, the province of Manitoba was ranked sixth among the top 29 performing jurisdictions with relatively small proved oil and gas reserves, compared to Saskatchewan, which was ranked seventh. Alberta was also the only Canadian province featured among the top jurisdictions with the largest petroleum reserves that are least likely to deter investment or are most attractive.
  • While Saskatchewan produces enough gasoline to meet its needs, due to logistics and business arrangements, the province also imports gasoline and other RPPs from neighboring provinces such as Alberta. Gasoline and other RPPs produced in Saskatchewan are also exported to neighboring provinces
  • Saskatchewan’s electricity sector produces the second-highest amount of GHG emissions after Alberta, primarily because of its reliance on coal-fired generation. In 2017, Saskatchewan’s power sector emitted 15.5 MT CO2e emissions or 21% of total Canadian GHG emissions from power generation.
  • In 2018, Saskatchewan’s net inter-provincial and international electricity inflows were 0.1 TW.h. Saskatchewan trades primarily with Montana, Alberta, and North Dakota.
  • With a generating capacity of 4 533 megawatts (MW), the province generated 24.3 terawatt-hours (TW.h) of electricity (Figure 2) in 2018, which is approximately 4% of the total Canadian generation.
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