HCMs can be targeted at investments made in specified destination countries or economies. Geographic considerations may play a role, for example a preference for investments in the same region as the home country. Other considerations for such targeting could be host-country characteristics, such as level of development or political stability. Relations with the host country could play a role, including the existence of investment treaties or other cooperation agreements and the strength of political ties.
Some host economies may also be associated with more probable home-country effects. For example, investments in advanced economies could be associated with access to large markets or the potential to obtain know-how and technologies, whereas resources-rich countries offer the possibility to gain access to raw materials and natural resources.
It is possible to coordinate such targeting efforts with the governments of the chosen destinations, to achieve corresponding adaptations to host country policies concerning inward investments.
HCMs could specifically aim to support investments that are made in countries where they can be expected to have a significant development impact, such as in least developed countries. Moreover, home country governments can make eligibility for HCMs contingent on specific conditions related to the responsible conduct of MNEs and the economic, social and development impact they are expected to have in the countries where they invest. MNEs could be required to provide assessments of their impact in areas such as sustainability, job creation and technology transfer, as well as their performance in ensuring the maintenance of appropriate social, environmental and labour rights.
Key insights
- HCMs can be targeted at investment projects in specified destination countries, such as emerging or developing economies or countries in the same region.
- Targeting by investment destination often focuses on emerging economies and developing countries.
- Developing country governments can target investments made in advanced economies to promote know-how and technology transfer and home-country upgrading.
Interactions
B6) Investment destination: Home-country measures can be targeted at investments undertaken in a particular investment destination or specific type of host country, such as developing or advanced economies.
C1) Institutional arrangements: Institutions dealing with OFDI might focus on specific investment destinations, such as the focus of development finance institutions on investments in developing countries.
C2) Regulations: It is possible to use regulations to restrict or encourage OFDI to specific countries. The monitoring of corporate social responsibility and sustainable development impact of investors could focus on investments in developing countries.
C3) Early support services: Early support services can focus on specific investment destinations. For example, more detailed information might be provided on destination countries promoted by the home government for OFDI, such as neighbouring countries or key markets.
C4) Financial support: Financial support can focus on investments in specified destination countries. These are often emerging markets or developing countries.
C5) Fiscal support: It is possible to not extend fiscal HCMs to companies investing in countries where they already enjoy preferential tax treatment (e.g., in tax havens).
C7) Treaties: Given that investment treaties secure stronger investment protection and better market access, they encourage companies to invest in the economies of the treaty partners.
C8) Operational support: Governments will be able to provide more operational support in countries where they have greater diplomatic and economic cooperation.
Existing Country Practices
Targeting by investment destination in China: The China-Africa Development Fund supports Chinese enterprises investing in Africa.
Targeting by investment destination in Germany: DEG co-finances feasibility studies for potential investment projects if they are relevant to development and correspond with the broad concept for German development cooperation.
Targeting by investment destination in India: There are additional approval or currency requirements for investments in Pakistan, Bhutan and Nepal.
Targeting by investment destination in Japan: JBIC focuses its overseas investment loans and equity participations on investments in developing countries, though in specific sectors investments in developed countries are also eligible.
Targeting by investment destination in Spain: ICO may finance investments that contribute to sustainable development, economic prosperity, equality and job creation in host countries. Projects that do not comply with international standards in these areas are not funded.
Targeting by investment destination in Switzerland: The Seco Start-up Fund (SSF) offers loans for the first expansion of Swiss companies into emerging economies – a specific list of eligible countries is provided.
Targeting by investment destination in Thailand: The Thai Overseas Investment Promotion Division focuses its services provision on investments destined for two types of target markets: ASEAN countries and specified emerging economies (in Thai).
Targeting by investment destination in the United States: The DFC prioritises investments that are made in low and lower-middle income economies. When they address certain key priorities, specific investments in upper-middle income countries can be considered. A list of eligible countries is provided. The DFC assesses the developmental impact of projects by examining various relevant dimensions, such as growth, local impact, job creation, innovation and inclusion. There are also environmental and social impact assessments.
Resources
Some countries use regulations to restrict or encourage OFDI to specific countries. Relevant information can be found in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).
Given that investment treaties secure stronger investment protection and better market access, they offer encouragement to companies to invest in the economies of the treaty partners. UNCTAD’s Investment Policy Hub offers a large database of IIAs, both BITs and TIPs, with access to the legal texts.