Tuesday, May 15, 2007


Why Investment Matters
Kavaljit Singh
Forests and the European Union Resource Network (www.fern.org)


Many developing countries actively woo foreign investment into domestic enterprises. A serious risk, though, is that unfettered inflows can turn out to be outflows, as Kavaljit Singh cautions in Why Investment Matters, from the Forests and the European Union Resource Network (www.fern.org). "The foreign company can finance the equity buyout of a domestic company through domestic banks and lenders," explains the author, who is director of Public Interest Research Centre, New Delhi. He cites, as example, the Dabhol power plant, which got the bulk of its debt funds from Indian banks.

FDI (foreign direct investment) involves substantial foreign exchange costs, says Singh. "Capital can move out of a country through remittance of profits, dividends, royalty payments, and technical fees." In the case of Brazil, for instance, foreign exchange outflows `rose steeply from $37 million in 1993 to $7 billion in 1998'.

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