An investment in the form of controlling ownership in a business in one nation by a company based in another nation is known as a foreign direct investment (FDI).
A concept of direct control separates it from foreign portfolio investment. An investor simply purchases shares of foreign-based businesses in foreign portfolio investments.
“Mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra-company loans” are all examples of foreign direct investment. I
n a narrow sense, “foreign direct investment” only includes the construction of new facilities and a long-term management stake (10 percent or more of voting stock) in a business that operates in a different economy than the investor’s own.
According to the balance of payments, FDI is the sum of equity capital, other long-term capital, and short-term capital. Participation in management, joint ventures, and the transfer of technology and expertise are typically forms of FDI.
The net (outward FDI less inward FDI) cumulative FDI for any given period is called the stock of FDI. Investment through the purchase of shares is not included in direct investment.
Who is eligible to invest abroad?
Any of the following are examples of what constitutes a foreign direct investor and can be included in any economic category:
a single person;
a group of similar people;
a private or public business;
a collection of related businesses;
a body of government;
a legal estate, trust, or other social group; or any combination of the previous options.
What kinds of investments can a foreign investor make?
Any of the following methods can be used by a foreign direct investor to gain voting power over an enterprise in an economy:
by incorporating a subsidiary or company with 100% ownership anywhere.
by purchasing shares in a related business.
through the acquisition or merger of a separate business.
collaborating with a different business or investor in an equity joint venture.
FDI benefits:
Incentives for foreign direct investment may take the following forms:
special economic zones (EPZs) – Export Processing Zones – Bonded warehouses Maquiladoras investment financial subsidies free land or land subsidies relocation & expatriation infrastructure subsidies R&D support Energy derogation from regulations (usually for very large projects) by excluding internal investment to get a profit in the downstream.
Organizational Structures:
For opening a place of business, there are a variety of corporate structures to choose from. A foreign company can establish a presence in the nation in one of three (03) ways:
Office of Liaison;
Office in Branch; and a subsidiary with a local incorporation called
Security of Foreign Investment:
Protection from Legislation: Foreign investors are protected by a number of laws.
Treaties on bilateral investments (BITs): The following are provided by 46 bilateral agreements on investment promotion and protection:
Investors from the other Contracting Parties must be encouraged to make investments in their respective territories by the Contracting Parties.
discrimination against both domestic and international investors.
In the event of receiving compensation for losses incurred as a result of war, other armed conflicts, or a state of national emergency, equal or nondiscriminatory treatment.
Profits, dividends, interest income, liquidation proceeds, loan repayments, salaries, wages, and other forms of compensation, among other things, can be freely transferred from investments.
a procedure for resolving disputes between a host nation and an investor from the other nation, as well as a dispute resolution mechanism for any disagreements regarding the interpretation of the respective agreements.
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