In a report titled “Investing Across Borders 2010” released on Wednesday, the World Bank said excessive limits and outdated laws are significant hurdles for foreign direct investment (FDI) and their poor implementation often results in extra cost for investments.
The report calls for effective laws and regulation in case of FDI for the nations to obtain best results for their economies, citizens and investors.
“Foreign direct investment is critical for countries’ development, especially in times of economic crisis. It brings new and more committed capital, introduces new technologies and management styles, helps create jobs, and stimulates competition to bring down local prices and improve people’s access to goods and services,” said Janamitra Devan, Vice President of Financial and Private Sector Development, World Bank Group.
The report analyzes the laws, regulations, and practices impacting foreign direct investment (FDI) in 87 economies. It takes into consideration parameters such as investment across sectors, start local businesses, access industrial land, and arbitrate commercial disputes.
Most of the 87 economies have FDI-specific restrictions that hamper foreign investment due to high incidence of corruption, high levels of political risk, and weaker governance structures, the report said.
Key findings of the report:
-- Canada, Georgia, Rwanda, France, Afghanistan, Egypt, and Singapore are among the countries with the fastest start-up processes which require less than 10 days.
-- Angola (263 days), Haiti (212 days), República Bolivariana de Venezuela (179 days), Brazil (166 days), Papua New Guinea (108 days), China (99), Vietnam (94), Indonesia (86), Cambodia (86) are among the countries with the longest start-up processes.
-- Online availability of laws regarding establishment of foreign business is present in all the countries except Ethiopia, Ghana, and Liberia.
-- Nearly 90 percent of countries restrict foreign companies from entering in some sectors of their economies.
-- Enforcement of arbitration award requires more than a year in the South Asian economies while in high-income OECD countries such as France and the United Kingdom it can be obtained in less than 2 months. In Pakistan, Philippines, and Sri Lanka it can take up to two years. Special statutes for commercial arbitration are not present in about 10 percent of countries.
-- Eastern Europe and Central Asia is the region most open to foreign participation in all the sectors. While China and Indonesia limit foreign equity ownership in many service sectors in Asia region. In Ethiopia, banking, insurance, and telecommunications industries are not allowed for foreign companies.
-- In Sub-Saharan Africa and the Middle East and North Africa, completion of procedures by foreign companies consumes twice the time required by domestic companies.
-- Chile, Guatemala, and Peru are among the world’s most open economies, which place no restrictions on foreign ownership in any sectors in Latin American and Caribbean region.
-- Countries in the Middle East and North Africa are fairly restrictive on foreign equity ownership in many sectors, except Tunisia where there are no restrictions.
-- In South Asia, primary sector is subject to more restriction than other regions. Sri Lanka restricts in the mining, oil, and gas sectors, and in India, forestry is not allowed for FDI. India is the only country in the region with restrictions in telecommunications, and Sri Lanka in electricity. While all the countries require investment approval or notification, Pakistan is an exception.
-- In Nicaragua and Sierra Leone, it requires half a year to lease industrial land, in contrast to less than two weeks in Armenia, Republic of Korea, and Sudan.