What Is Foreign Investment?: Foreign Direct Investments Include Long-Term Physical Investments Made by

What Is Foreign Investment?
Foreign investment involves capital flows from one country to another, granting

the foreign investors extensive ownership stakes in domestic companies and assets.
Foreign investment denotes that foreigners have an active role in management as a
part of their investment or an equity stake large enough to enable the foreign
investor to influence business strategy. A modern trend leans toward globalization,
where multinational firms have investments in a variety of countries.
 Foreign direct investments include long-term physical investments made by

a company in a foreign country, such as opening plants or purchasing
buildings.
 Foreign indirect investment involves corporations, financial institutions, and
private investors that purchase shares in foreign companies that trade on a
foreign stock exchange.
 Commercial loans are another type of foreign investment and involve bank
loans issued by domestic banks to businesses in foreign countries or the
governments of those countries.
Foreign Direct Investment
Foreign direct investment happens when an individual or business owns 10% or

more of a foreign company.1 If an investor owns less than 10%, the International
Monetary Fund (IMF) defines it as part of their stock portfolio.
A 10% ownership doesn't give the individual investor a controlling interest in the
foreign company. However, it does allow influence over the company's
management, operations, and policies. For this reason, governments track
investments in their country's businesses.
Pros
Foreign direct investment benefits the global economy, as well as investors and

recipients. Capital goes to the businesses with the best growth prospects, anywhere
in the world. Investors seek the best return with the least risk. This profit motive is
color-blind and doesn't care about religion or politics.
That gives well-run businesses, regardless of race, color, or creed, a competitive

advantage. It reduces the effects of politics, cronyism, and bribery. As a result, the
smartest money rewards the best businesses all over the world. Their goods and
services go to market faster than without unrestricted FDI.
Individual investors have the potential to achieve greater portfolio efficiency

(return per unit of risk), as FDI diversifies their holdings outside of a specific
country, industry, or political system. Generally, a broader base of investments will
dampen overall portfolio volatility and provide for stronger long-term returns.
Recipient businesses receive "best practices" management, accounting, or legal

guidance from their investors. They can incorporate the latest technology,
operational practices, and financing tools. By adopting these practices, they
enhance their employees' lifestyles. That raises the standard of living for more
people in the recipient country. FDI rewards the best companies in any country. It
reduces the influence of local governments over them.
Recipient countries see their standard of living rise. As the recipient company

benefits from the investment, it can pay higher taxes. Unfortunately, some nations
offset this benefit by offering tax incentives to attract FDI.
Another advantage of FDI is that it offsets the volatility created by "hot money."

That's when short-term lenders and currency traders create an asset bubble. They
invest lots of money all at once, then sell their investments just as fast.
That can create a boom-bust cycle that ruins economies and ends political regimes.
Foreign direct investment takes longer to set up and has a more permanent
footprint in a country.
Cons
Countries should not allow foreign ownership of companies in strategically

important industries. That could lower the comparative advantage of the
nation, according to an IMF report.
Second, foreign investors might strip the business of its value without adding any.
They could sell unprofitable portions of the company to local, less sophisticated
investors. They can use the company's collateral to get low-cost, local loans.
Instead of reinvesting it, they lend the funds back to the parent company.
What is foreign investment and how does foreign investment help a nation’s
economy to grow?
Foreign investment, as the name implies, is a direct form of investment into a

business in a country by an individual or group of individuals from another
country.
For example, if a businessman or company from the United Kingdom travels to

South Africa to invest in a business in the country, then we have a good example of
foreign investment taking place.
Basically when any foreigner invests in your country, we call that foreign
investment.
Foreign investments are very important to the economies of every country all over
the world. No country does not need foreigners to come and invest in their country.
Even the largest economies in the world are always in need of foreign investment
to help grow their economies the more.
How does foreign investment boost the economy of a country?
Below are some of the advantages of foreign investment to a nation’s economy:
Provides employment. One of the biggest advantages of foreign investment to a

nation’s economy is the fact that the more foreign investment that comes into a
country, the more jobs are going to be created. And when more jobs are created in
a given country and more people are working and paying their taxes, this helps in
no small way in strengthening and growing the economy of a country.
Source of revenue. Foreign investment is a huge source of revenue for every

country that receives it – whether developed or developing countries. Over the
years foreign investments have helped so many developing countries in securing
enormous amounts of revenue that have helped in developing their nations and
curbing poverty. For example, if a major American company is established in a
developing country like Ghana, the country will enjoy significantly from this. Not
only will the construction of the company in the country create new jobs, but it will
also cause a lot of money to be pumped into the economy of the country and
strengthen it. This revenue that will come into the country comes largely through
the tax that the company pays to the government. Also, the taxes on the incomes of
the employees (income taxes) can also be a major source of revenue for the
government. All these monies being injected into the country as a result of foreign
investment go a long way in helping boost the economy of the country.
Foreign investment allows for the transfer of technology to other
countries. This is very beneficial for developing countries in particular. With
foreign investment, developing countries can enjoy the transfer of technology from
developed countries into their countries where the level of technology might be
very low. And as we might all know, the more advanced forms of technology that a
country has, the more economic development the country experiences. This is the
reason why economies of countries such as Japan, Germany, the United States
cannot be compared to those of developing countries where the level of technology
is very low. When foreigners invest in developing countries, they take with them
their advanced forms of technology, which end up being introduced into the
country and helping the economy of the country.
Experts in business are also transferred to other countries. Many developing

countries enjoy the transfer of experts in business from developed countries to
theirs as a result of foreign investment. These experts with their tremendous
amounts of expertise and experience in business help in diverse ways in promoting
the economic development of the nations they find themselves in.
TYPES OF FOREIGN INVESTMENT IN PHILIPPINES
1. Foreign Direct Investments
Foreign Direct Investments (FDI) refers to the physical investments and purchases
of an individual or company in assets in a foreign country. These may include
opening factories, plants, and operations, as well as purchasing machineries,
buildings, and equipment.
FDI is a long-term investment that benefits both the foreign investor and the
country because their investment contributes to the economy and growth.
2. Foreign Indirect Investments or Foreign Portfolio Investments
Foreign Indirect Investments, also known as Foreign Portfolio Investments (FPI),

is when investors, be it individuals, corporations, or business entities purchase
stocks, stakes, positions, bonds or other financial assets in a foreign country.
In FPI, investors have no direct control of their investments and can be more
temporary than FDI, as their shares can easily be sold or traded.
3. Commercial Loans
Until the 1980s, commercial bank loans were the largest source of foreign

investments in developing countries and emerging economies. In commercial
loans, domestic banks issue loans to businesses, governments, or other entities in
foreign countries.
4. Official Flows
Official Flows is the general term associated with the various forms of assistance
that developed countries provide foreign developing nations. Simply put, Official
Flows refers to the investments that one country makes in another nation.
Philippine Foreign Investment Act of 1991
The primary legislation governing foreign investments in the Philippines is

Republic Act 7042 as amended by RA 8179, otherwise known as the Foreign
Investment Act of 1991 (FIA). It’s considered a landmark legislation because it
promotes the entry of foreign investments in the country.
Under the FIA, foreigners are allowed to own 100% equity of their business,
provided that the nature of business is not subject to restrictions, as prescribed in
the Foreign Investments Negative List (FINL).
The FINL is a list of business activities and products that are either open to foreign
investors or reserved for Filipino nationals or citizens.
Foreign Investments in Export Enterprises
Foreign investment in export enterprises can own 100% equity as long as the
products and services offered do not fall under the FINL. The foreign enterprise is
required to register with the Bureau of Investment (BOI) and submit regular
reports to ensure compliance.
The BOI will then report to the Securities and Exchange Commission (SEC) and
the Bureau of Trade Regulation & Consumer Protection (BTRCP) if the export
enterprise fails to comply with regulations. The export enterprise will then be
subject to reduce their domestic sales to merely 40% of their total production.
Non-compliant foreign export enterprises will forfeit their SEC or BTRCP

registrations.
Foreign Investments in Domestic Market Enterprises
Foreign investors are allowed to own 100% of domestic market enterprises unless
it is prohibited by the constitution or the FINL (as amended by Republic Act No.
8179).
How Philippines can attract more foreign investment
https://news.abs-cbn.com/business/12/05/14/how-philippines-can-attract-more-
foreign-investments
Foreign investment in Philippines
https://businessmirror.com.ph/2018/08/06/foreign-investments-supporting-
economy/

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What Is Foreign Investment?

Foreign investment involves capital flows from one country to another, granting

 Foreign direct investments include long-term physical investments made by

Foreign Direct Investment

Foreign direct investment happens when an individual or business owns 10% or

Foreign direct investment benefits the global economy, as well as investors and

That gives well-run businesses, regardless of race, color, or creed, a competitive

Individual investors have the potential to achieve greater portfolio efficiency

Recipient businesses receive "best practices" management, accounting, or legal

Recipient countries see their standard of living rise. As the recipient company

Another advantage of FDI is that it offsets the volatility created by "hot money."

Countries should not allow foreign ownership of companies in strategically

Foreign investment, as the name implies, is a direct form of investment into a

For example, if a businessman or company from the United Kingdom travels to

How does foreign investment boost the economy of a country?

Below are some of the advantages of foreign investment to a nation’s economy:

Provides employment. One of the biggest advantages of foreign investment to a

Source of revenue. Foreign investment is a huge source of revenue for every

Experts in business are also transferred to other countries. Many developing

TYPES OF FOREIGN INVESTMENT IN PHILIPPINES

1. Foreign Direct Investments

Foreign Indirect Investments, also known as Foreign Portfolio Investments (FPI),

3. Commercial Loans

Until the 1980s, commercial bank loans were the largest source of foreign

4. Official Flows

Philippine Foreign Investment Act of 1991

The primary legislation governing foreign investments in the Philippines is

Foreign Investments in Export Enterprises

Non-compliant foreign export enterprises will forfeit their SEC or BTRCP

Foreign Investments in Domestic Market Enterprises

How Philippines can attract more foreign investment

Foreign investment in Philippines

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