Questions:
Question 1=
Please respond to the following:
Select a country with which you are (at least somewhat) familiar and create 3 best practices for managing the risks associated with direct foreign investment. Briefly describe the country. Describe each best practice and support your selection with arguments. Cite your sources.
Question 2 =Comment
Brazil, market was booming 2009. The country was been considerating one of the 5th economies in the world, until 2011 when the market rapidly slow down. Brazil is has efficient production of many goods, specially oil. The country had huge opportunities to receive FDI investment in the industries of extractive and the agriculture sector (Andrew Van den Born, 2014). In 2013 FDI, reached 64 billion of USD in investments, the FDI investors declined 62 billion in 2014. Brazil ranks 120th out of 189 countries in the 2015 Doing Business classification issued by the World Bank(en.santandertrade.com).
Brazil presents 4 major problems, which holds back the country for development:
1. Inflationary pressures- The central bank raised interest rate for a long period of time.
2. tax regime- Brazil presents very hard and bad tax regime. It is considered one of the countries which has high collection of taxes. To import and export that amount of taxes created by the government is outrageous, making trade difficult and very expensive.
3. Floating exchange rate of the Brazilian money- Valuing the real (money of Brazil) against the dollar automatically reduces the country's competitiveness against Asian. The fluctuating between Real and Dollars is not stable, the currency in Brazil against the dollar is always huge being $ 2.80 Real today, but sometimes the Brazilian currency can reach $4.00 for $1 dollar.
4. Labor -The Labor laws are very onerous, involving substantial costs to foreign companies and keeping a good part of the local business in the informal sector.
To manage FDI risks, investors interested in do business in Brazil, must pay close attention to the economy, currency exposure and political risks of the country. Investors should calculating profitability based on the explicit risk and capital cost. In order to have less risk, investors must hedge currency exposure, which in Brazil the fluctuation of the currency is extremely high. Hedging risk present a greater protection against market uncertainty. Investors who focus in Latin and south America countries for investments should carefully invest their money in countries which present less risk for business. In some countries as Costa Rica, the Government welcomes development and are interested in strongly make part of the globalization movement, modifying its economy policies in order to reach market development.
Risks of Foreign Investment in Brazil
by Andrew Van den Born, February 26, 2014, retrieved from https://blog.willis.com/2014/02/risks-of-foreign-investment-in-brazil/#sthash.oJXdxCaH.dpuf
https://en.santandertrade.com/establish-overseas/brazil/foreign-investment
Question 3=
Please respond to the following:
Discuss foreign equity ownership restrictions. Why do you think countries impose these restrictions? Support your statements with arguments.
Provide at least one example. Cite your sources.
Question 4 = Comment
Obvious statutory restrictions on foreign ownership of equity related to the acquisition of shares in existing companies is a contributor to attitudes and policies towards liberalization of international capital flows. Information retrieved from www.OECD.org confirmed that foreign direct investment (FDI), even more than other types of capital flows, has historically given rise to such concerns, since it may involve a controlling stake by often large multinational corporations over which domestic authorities may have little power. For these reasons, governments have sometimes imposed restrictions on inward FDI. It should also be noted that restrictions to foreign ownership are the most obvious barriers to inward FDI where authorities limit the share of companies' equity capital in a particular sector that non-residents are allowed to hold. Obligatory screening and approval procedures are also used to limit FDI although their constraining effects is contingent upon how strongly these rules are implemented and enforced. Other formal restrictions that discourages FDI inflows include constraints on the ability of foreign nationals to work or manage in affiliates of foreign countries and other operational controls on such businesses. An example of majority domestic ownership requirements include airlines in the European Union and North American countries, telecommunications in Japan, and coastal and freshwater shipping in the United States. Exclusive domestic ownership is often applied to natural resource sectors with the purpose of giving citizens access to the associated rents. Another example of constraints on foreign nationals is the banning of fishing and energy sectors in Iceland and in the oil sector in Mexico. In some countries such as Japan, these restrictions are imposed by law; in others, such as Switzerland, they are chosen by individual companies. According to Stulz & Wasserfallen, (1995), legislative restrictions are sometimes motivated by a desire to preserve the independence of local industries, possibly because of national defense concerns, such a motivation cannot explain binding restrictions imposed by individual firms. I am of the opinion that foreign equity ownership is restricted to prevent foreign companies for monopolizing jobs, income and revenue within a foreign country that may stifle local residents' economic growth. Local governments may be concerned that MNC's may return the wealth to their country as opposed to re-investing it in that region.
Reference:
N/A, Retrieved May 21, 2015 from https://www.oecd.org/eco/outlook/2956455.pdf
Stulz M. & Wasserfallen, W, (1995). Foreign Equity Investment Restrictions, Capital Flight, and Shareholder Wealth Maximization: Theory and Evidence. Retrieved fromhttps://fisher.osu.edu/supplements/10/10402/foreign-equity.pdf