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FORGEIN DIRECT INVESTMENTS [FDI]


Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. It is the establishment of an enterprise by a foreigner. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form an international business or a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

Types:

A foreign direct investor may be classified in any sector of the economy and could be any one of the following:

* an individual;
* a group of related individuals;
* an incorporated or unincorporated entity;
* a public company or private company;
* a group of related enterprises;
* a government body;
* an estate (law), trust or other societal organisation; or
* any combination of the above.

Methods of Foreign Direct Investments

The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an economy through any of the following methods:

* by incorporating a wholly owned subsidiary or company
* by acquiring shares in an associated enterprise
* through a merger or an acquisition of an unrelated enterprise
* participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:

* low corporate tax and income tax rates
* tax holidays
* other types of tax concessions
* preferential tariffs
* special economic zones
* investment financial subsidies
* soft loan or loan guarantees
* free land or land subsidies
* relocation & expatriation subsidies
* job training & employment subsidies
* infrastructure subsidies
* R&D support
* derogation from regulations (usually for very large projects)