Foreign investment and its types
Foreign investment and its types

خانه Foreign investment and its types

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Foreign investment and its types

Foreign investment and its types

Today, many countries in the world have a strong desire to attract foreign investment due to insufficient domestic resources for investment. Foreign investment is usually done in two ways, equity investment (indirect) and foreign direct investment. The purchase of bonds and stocks of companies in stock exchange transactions and deposit bills in foreign banks are types of equity investments, in which case the foreign investor has no direct role in the management of the production unit and Maliniz is not responsible for it. The most important feature of equity investment is that it is volatile. In other words, a foreign investor is able to transfer his capital to his own country or a third country by selling shares or securities at any time. But foreign direct investment is a type of investment that is made in order to gain a permanent and permanent benefit in an institution located in a country other than the investing country, and the result is the acquisition of effective voting rights in the management of the company.

Studies show that foreign direct investment, for whatever reason and in any form, has significant effects on macroeconomic variables such as lower interest rates, lower exchange rates, higher economic growth, higher government tax revenue, lower government debt, Improving income distribution, technology transfer, increasing employment, export development, reducing imports and having a positive impact on the balance of payments.
In general, the factors affecting foreign direct investment can be divided into the following four groups:
A- Economic policy factors (such as economic stability, investment risk, etc.).
B- Factors of economic structure (such as infrastructures such as roads, ports, communication systems, …).
C – Incentives and support factors (such as tax exemptions, subsidies, …).
D- Geographical and political factors.
In all theories and models of economic growth, capital is considered as the driving force of economic growth and development. Accordingly, taking measures to attract sufficient capital to finance economic projects is one of the most important concerns of economic decision makers in any society. What should be considered in the field of foreign direct investment are the priorities of this type of investment in Iran.

What are the priorities, plans and expectations for investing?

Today, no country can achieve proper growth and development without active participation in trade, international affairs and the global economy. Therefore, the challenge that is currently facing developing countries, including our own, is how to participate effectively in these international activities. The important point is that attracting foreign direct investment and increasing the volume and variety of exports, and thus increasing the competitiveness of exports, is not in itself the ultimate goal, but a means to achieve the most important goal, namely the development of the country. Therefore, the policy of attracting capital should be focused on attracting capital that complements the country’s development strategy. It seems that investment priorities in Iran should return to sectors that have a comparative advantage.
Have a comparative economic advantage in terms of technology and new projects entering the country and industry growth. Currently, the most suitable sectors for investment that have a real comparative advantage are: information technology, petrochemical, energy, water, agriculture (especially the export of agricultural products) and tourism. However, the geographical location of our country is a unique situation and is very effective in creating foreign attraction and investment.

Necessary strategies to attract foreign direct investment

Multinational countries and companies are more inclined to invest in countries that are members of the World Trade Organization, and Iran’s non-membership in this organization can be one of the main reasons for the limited foreign investment in our country. Political and economic uncertainty and instability can be one of the main reasons for Iran’s failure. Evidence in this regard shows that in economies where the absolute rule of law is not recognized, efforts to attract foreign investment have always failed despite the granting of more concessions and facilities.
Therefore, trying to increase investment security through stability in government policies and non-constant change of laws can be considered as the first priorities to encourage foreign investment. Exchange rate fluctuations are another factor that has had a negative effect on foreign direct investment in Iran. In this regard, reforming the country’s foreign exchange system and stabilizing it can play an effective role in attracting foreign investment.
In addition to the mentioned variables, tariff rates and nominal wage index, and accumulation of domestic capital are among the other factors that have had a negative effect on foreign direct investment in Iran. In general, considering the possibility of foreign direct investment in different countries, the desirability of only one or more variables of economic, financial and technical incentives or supportive, political and geographical factors will not be enough for these companies to invest in a particular project in one country. Was. Rather, evaluating all the factors and collectively leads to the decision to make an investment or not to make an investment. Attracting foreign direct investment in the country is not possible without changing attitudes among politicians and experts and creating a favorable environment for capital inflows, and the new law can not do much. For this reason, until the right cultural, social, and political conditions are in place, foreign companies will have little interest in investing directly in Iran, and ultimately high-ranking officials will have to change their approach to foreign investment.

Types of foreign indirect investments

 

Types of foreign indirect investments

 

The purpose of accepting foreign investment in the country is economic growth and development, increasing job opportunities, acquiring and developing technology and management skills, and improving the quality of products and increasing the country’s export potential.

Since ????, the framework of foreign investment law in Iran has been the law of attracting and protecting foreign capital. In order to improve the country’s economic structure, the parliament proposed a new law on foreign investment called the Law on Encouragement and Protection of Foreign Investment, which was approved. .
The Law on Encouragement and Support of Foreign Investment allows investment in all areas of economic activity in Iran. In fact, no areas other than arms, ammunition and national security are closed to foreign investment.
According to the Law on Encouragement and Protection of Foreign Investment, foreign investment can be done in the following two ways:

A) Foreign direct investment in all areas authorized for the Iranian private sector through direct participation in the capital of Iranian companies, whether in new projects or existing companies.

B) Foreign indirect investment in the form of contractual arrangements that allow the implementation of any type of investment defined in the Foreign Investment Promotion Law, except direct investment.

Although the combinations recognized in the Foreign Investment Promotion and Protection Act are limited to the Civil Partnership, Back Buy and Arrangement (Bot) methods, each of the above arrangements They are divided into different types. For example, different types of construction, ownership, operation and transfer (Boot), construction, ownership and operation, construction, lease and transfer (BLT), reconstruction, operation and transfer (Rot) and the like, as well as Project financing arrangements and profit sharing were mentioned. In other words, any type of investment in which the foreign investor is not willing or eligible to have a share of the capital and ownership of the joint venture falls into this broad category known as “indirect” investment.

Bot: Build, operate and assign

In these types of contracts, the foreign investor defines, finances, and executes a project for a specified period of time to ensure its production capabilities. All major investment costs as well as a certain amount of profit are obtained through revenues and sometimes reproductions. At the end of a certain time, the project will be handed over to the Iranian partner without any responsibility. The order of the consortium in these projects is often complex. Because each investor is identified individually by performing specific tasks within larger projects. Therefore, each step of the Bot requires patience, perseverance and perseverance, which begins with choosing the right partner and adopting a precise method. Investors must then perform the following steps:
Development of joint investment mechanism as a consortium

Determining local and equal participation

Determine the profitability of the project by considering the price and profit formulas, capital / loan ratios and incentive schemes
Establish safeguards to reduce market risks, contracts and foreign exchange. The scope of potential BOT projects in the country is very wide. These projects have great potential in the country’s infrastructure sector.

(Back Buy): Mutual sale with civil partnership

Buyback contracts are fixed price service contracts with fixed returns. This method of investment allows the government to attract foreign capital and services and technical knowledge, while reducing the cost of foreign exchange and increasing export capacity. In back-up projects, the foreign investor pays all the initial costs and maintenance of the project and transfers full control to the Iranian partner as soon as the project is completed. The investor then regains all financial costs and a fixed amount of output (or profit).

Buyback contracts should clearly state all the rights and obligations of their partners on the following issues:

Financial issues
Handling legal disputes
Implementation standards
Maintenance services
Fluctuations in production costs, pricing and exchange rates
Shipping and distribution

Training and upgrading personnel skills Today, the use of back-up contracts as a tool for development and modernization is common in the oil and gas industry. In other industries such as textiles, metals, petrochemicals, such contracts are used for fast and cost-effective import of machinery. Currently, most of this contract is used in the oil and gas and petrochemical industries in the country, in which the provincial forces are naturally less involved. In the oil and gas industry, by-products are service contracts that are concluded between the Ministry of Oil and a consortium to carry out specialized projects. When a project is completed, all parts of the project will be under the management of the ministry, so the backbone is designed to guarantee the government’s sovereignty and ownership of the country’s oil and gas resources. The purpose of such contracts is to achieve the following objectives:

Technology transfer

Short-term presence of foreign companies in the development of oil and gas fields
Full control and close supervision of the National Iranian Oil Company on scheduling and costs
Less costs than other conventional contracts Maximum use of all related domestic capacities to develop the quality of domestic resources and prevent the flow of foreign money.

Joint Ventures (Joint Venture):

Joint ventures between foreign and domestic companies help the foreign country enter the country’s market through a private or public domestic partner. The existing technology and infrastructure in the country have made domestic companies ready to develop with foreign capital. Many domestic companies, especially in the private sector, are not actively seeking joint ventures to address their technical and managerial shortcomings. It seems that many companies can be revitalized and revitalized by transferring technology or foreign capital.

Investments that have both domestic demand and regional export potential are very profitable. Such goods are popular in all sectors and increase access to export markets. In addition, export earnings reduce dependence on the domestic banking system to return profits to the investing country.

Author: persian / Date: 2017-10-26
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