Author: Muharem Rusiti
Foreign investments usually play an important role in the economic growth, employment upswing, and general well-being and prosperity of a nation and its people. This is especially true for developing countries and in more fragile contexts, where foreign investments are often indispensable due to the insufficiency of domestic financing channels and other resources.
Attracting foreign investments enables liquidity and supports the development of the economy of a country, particularly in times when public debt and budgetary commitments may limit spending capacity. As a result, it brings simultaneous benefits in terms of know-how, innovation, and technological progress.
In a globalized world where we face different challenges, foreign investments competition between nations is hence indubitably going to become increasingly elevated. It is therefore essential for countries to develop smart, sound, and multifaceted strategies aimed at creating a favorable and attractive ecosystem for foreign investments that is highly competitive internationally.
Let us now explore some of the key elements that play a central role in the attraction of foreign investments to a country.
Openness to foreign investments
Many factors influence the influx of foreign investments, but the most obvious one is often overlooked: the predisposition and willingness of a country to allow them. Historically in fact, different countries have had in place tedious limitations to external ventures.
Restrictions on inflows of foreign investments may have different forms, including restraints on entry to specific sectors, intricate approval mechanisms, and limitations on share of foreign ownership, to name just a few.
Thus, countries need first of all, as a precondition, to be open and welcoming. Governments and policymakers must create the necessary policies and environment that allow and encourage foreign investments.
Political and institutional stability
Political and institutional stability – with a solid executive, legislative, and judiciary system – is one of the most decisive factors when it comes to attracting foreign investments. This is due to the fact that a stable environment offers investors a secure and safe climate in which they can settle and operate without the fear of turbulence and turmoil.
Furthermore, a stable government and institutions may facilitate the diplomatic activities of a country and consequently promote its international position and ease its global integration and activities.
Global integration
The integration of a country in the global economic, financial, and trade systems is a strong element that allows foreign investment inflows. It is therefore vital for nations to promote and actively take part into diverse bilateral and multilateral institutions. Entering into cooperation agreements is essential in order to grant themselves and the investors and enterprises that are active in their country a competitive and optimal operability position in the international context.
Dedicated investment promotion agencies
For all countries, but particularly for developing ones with much promise but less international attention and appeal, dedicated investment promotion agencies are essential if they want to attract foreign investments and scale up their economies.
States should develop an effective strategy in this regard and establish dedicated foreign investment promotion agencies as an integral part of their diplomatic and consular network. Offices abroad may help to proactively conduct scouting, investor care, international communication, image building, and general promotional activities in order to find and persuade potential foreign actors to invest in their country. This is helpful particularly in high-tech sectors, infrastructures, strategic and corporate functions such as R&D, and advanced manufacturing.
Clear regulatory framework and procedural simplification
A just and well-defined legislative and regulatory framework with a clear profiling of regulations and policies alongside a simplified and efficient system of administrative procedures is of utmost importance. This is achieved by adopting targeted measures on the most critical aspects that affect investments is another element of fundamental importance.
This means drafting and implementing the necessary business and employment laws, designing a transparent tax scheme, and trying to overcome the possible flaws and limits of bureaucratic procedures by adopting simplified and streamlined processes and digitizing administrative activities and practices, among others.
Favorable fiscal environment and incentives
A favorable and internationally competitive fiscal regime and incentives are crucial when it comes to attracting foreign investments. Good and internationally competitive policies and incentives, which could be fiscal (tax-related), financial (grants), or of other types and must be non-discriminatory in order to give equal treatment to all investors, foreign and domestic alike, result in fact decisive when foreign investors decide whether to invest in a country or not.
Skilled domestic workforce
Investing in the educational and training system in order to have the necessary skilled human resources that would satisfy the needs of the labor market is another indispensable element for the attraction of foreign investments. Nations must hence make sure to grant the needed manpower indispensable to the functioning of the economy and industries of a country through their formative system.
Apposite immigration rules and special visas
Attracting foreign investments means being capable of drawing not only financial but also human capital, if necessary, with which to participate in the global formation of value and create jobs, knowledge and growth for a country. It is therefore imperative for nations to have adequate immigration rules that regulate the necessary influx of foreign workforce, particularly when there is a lack of adequately skilled domestic personnel.
Concurrently, countries may offer special visa and residency permits to individual foreign investors as an incentive, with the precondition, however, of carrying out the necessary checks and due diligence to avoid attracting persons and capital who might come from doubtful legal backgrounds.
Adequate infrastructure
Putting up adequate infrastructure including robust banking and finance structure, a decent internet and telecommunication network, stable and efficient energy supply, transport facilities, logistics hubs, and customs clearance terminals among others - are essential elements that quality investors usually consider when settling in a country. And if a nation lacks, for instance, the necessary banking institutes and expertise that are the foundation of international financial transactions needed to perform business activities, it can attract these from abroad as part of a multilayered foreign investments strategy.
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