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Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.

The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.

President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 57 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $70,742 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $7,850 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms that should help attract private and foreign direct investment (FDI). In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing FDI limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone.  Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities.

India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment.

Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards effectively closed off producers from global supply chains and restricted the expansion in bilateral trade and investment.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank/
Amount
Website Address
TI Corruption Perception Index 2021 85 of 180 https://www.transparency.org/en/countries/india 
Innovation Index 2021 46 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country (Million. USD stock positions) 2020 $41,904 usdia-position-2020.xlsx (live.com) 

 

 

World Bank GNI per capita (USD) 2020 $1,920 https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=
n&zm=n&country=IND
 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

7. State-Owned Enterprises

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities.

According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation.

Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp . While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land.

Nigeria

Executive Summary

Nigeria’s economy – Africa’s largest – exited recession with a 3.4% GDP growth rate in 2021 following a contraction of 1.9% the previous year.  The IMF forecasts growth rates of under 3% in 2022 and 2023 while the Nigerian National Bureau of Statistics predicts a more robust 4.2% growth rate in 2022.  President Muhammadu Buhari’s administration has prioritized diversification of Nigeria’s economy beyond oil and gas, with the stated goals of building a competitive manufacturing sector, expanding agricultural output, and capitalizing on Nigeria’s technological and innovative advantages.  With the largest population in Africa, Nigeria is an attractive consumer market for investors and traders, and offering abundant natural resources and a low-cost labor pool.  

The government has undertaken reforms to help improve the business environment, including by facilitating faster business start-up by allowing electronic stamping of registration documents and making it easier to obtain construction permits, register property, obtain credit, and pay taxes.  Foreign direct investment (FDI) inflows nevertheless declined from roughly $1 billion in 2020 to $699 million in 2021 as persistent challenges remain.  

Corruption is a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business.  Nigeria’s ranking in Transparency International’s 2021 Corruption Perception Index fell slightly from its 2020 score of 149 out of 175 countries to154 of 180 in 2021.   Businesses report that corruption by customs and port officials often leads to extended delays in port clearance processes and to other issues importing goods.  

Nigeria’s trade regime is protectionist in key areas.  High tariffs, restricted foreign exchange availability for 44 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth.  The government provides tax incentives and customs duty exemptions for pioneer industries including renewable energy.  A decline in oil exports, rising prices for imported goods, an overvalued currency, and Nigeria’s expensive fuel subsidy regime continued to exert pressure on the country’s foreign exchange reserves in 2021.  Domestic and foreign businesses frequently cite lack of access to foreign currency as a significant impediment to doing business. 

Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their own electricity.  Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty and limited domestic natural gas supply.  

Security remains a concern to investors in Nigeria due to violent crime, kidnappings for ransom, and terrorism in certain parts of the country.  The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country.  Nigeria has experienced a rise in kidnappings for ransom and attacks on villages by armed gangs in the North West and North Central regions.  Criminal attacks on oil and gas infrastructure in the Niger Delta region that restricted oil production in 2016 have eased, but a significant rise in illegal bunkering and oil theft has left the sector in a similar state of decreased output.  

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 154 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 118 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $6,811 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 $2,000 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

7. State-Owned Enterprises

The government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs have respective enabling legislations that govern their ownership.  To legalize the existence of state-owned enterprises, provisions have been made in the Nigerian constitution relating to socio-economic development and in section 16 (1).  The government has privatized many former SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014.  SOEs operate in a variety of sectors ranging from information and communication; power; oil and gas; transportation including rail, maritime, and airports; and finance.  

Nigeria does not operate a centralized ownership system for its state-owned enterprises.  Most SOEs are 100% government owned.  Others are owned by the government through the Ministry of Finance Incorporated (MOFI) or solely or jointly by MOFI and various agencies of government.  The enabling legislation for each SOE also stipulates its governance structure.  The boards of directors are appointed by the president and occasionally on the recommendation of the relevant minister.  The boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing board members.  Directors are appointed by the board within the relevant sector.  In a few cases, however, appointments have been viewed as a reward to political allies.  Operational autonomy varies amongst SOEs.  Most SOEs are parastatals of a supervising ministry or the presidency with minimal autonomy.  SOEs with regulatory or industry oversight functions are often technically independent of ministerial supervision; however, ministers and other political appointees often interfere in their operations.

All SOEs are required to remit a share of their profits or operational surpluses to the federal government.  This “independent revenue” more than doubled from 2020 to 1.1 trillion naira ($2.6 billion) in 2021 and exceeded budget projections by 13%.  This was as a result of the government’s drive to increase non-oil revenues as well as increasingly stringent oversight of SOE remittances.  The 60 largest SOEs (excluding the Nigerian National Petroleum Corporation (NNPC)) generated a combined 1.2 trillion naira ($2.9 billion) in revenues and spent a total 410 billion naira ($983 million) in the first eleven months of 2021.  The government often provides certain grants to SOEs that are inefficiently run and/or loss-making.  For example, and over the past five years, the government has allocated 102 billion naira ($245 million) to the Transmission Company of Nigeria, 402 billion naira ($964 million) to the Nigerian Bulk Electricity Trading Company, 154 billion naira ($369 million) to the Nigerian Railway Corporation, and 24 billion naira ($58 million) to the Ajaokuta Steel Company.  These SOEs wereall ostensibly established to generate and remit revenue.   

NNPC is Nigeria’s most prominent state-owned enterprise.  Under the implementation of the Petroleum Industry Act, NNPC was incorporated as a limited liability company in September 2021, although the incorporation process does not appear to have led to a de facto change in the company’s operations and the government maintains 100% ownership.  NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD).  The GMD reports to the Minister of Petroleum Resources.  In the current administration, the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum Resources acts as the de facto Minister of Petroleum in the president’s stead with certain limitations.  

NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is involved in exploration, refining, petrochemicals, products transportation, and marketing.  It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which are currently and largely inoperable.  NNPC remits proceeds from the sale of crude oil less operational expenses to the federation account which is managed by the federal government on behalf of all tiers of government.  It is also expected to pay corporate and petroleum profits taxes to the Federal Inland Revenue Service (FIRS).  NNPC began publishing audited financial statements in 2020 for the three prior fiscal years, a significant step toward improving transparency of NNPC operations.  The government generated crude oil net revenue of 1.5 trillion naira ($3.6 billion) in 2020 in large part due to NNPC’s $10 billion gross revenue and the government’s removal of the gasoline subsidy for half of 2020 in the face of low global oil prices.  However, despite higher oil prices, crude oil revenue fell to 970 billion naira ($2.3 billion) in the first eleven months of 2021.  This is largely due to declining crude production and the significant subsidy costs which NNPC deducts from revenue before remitting the balance to the government.

NNPC’s dual role as industry operator and unofficial regulator as well as its proximity to government lends it certain advantages its competitors lack.  For instance, the CBN often prioritizes NNPC’s foreign exchange requests and has offered the corporation a subsidized exchange rate for its importation of petroleum products in the past.  In addition, its proximity to government affords it high-level influence.  NNPC’s inputs formed a critical part of the government’s position during the drafting of the Petroleum Industry Act of 2021.  NNPC’s objection to the sale of an international oil company’s subsidiary with which it operates a joint venture has stayed the government approval required for the divestment.

The government also owns equity in some private-sector-run entities.  It retained 60% and 40% equity in the generation and distribution companies, respectively, that emerged from the power sector privatization exercise in 2013.  Despite being privately-run, revenues across the power sector value chain are hindered by the overall inefficiencies and illiquidity in the sector.  Consequently, a government facility finances a sizeable portion of the sector’s activities.  The Transmission Company of Nigeria, of which the government retained full ownership, is largely financed by the government.  The government owns 49% of Nigeria Liquefied Natural Gas (NLNG) Limited (NLNG) with the balance held by several international oil companies.  NLNG is one of Nigeria’s most profitable companies and the dividends paid to the government accounted for nearly 3% of federal government revenues in 2021.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $422,240 2020 $432,294 https://data.worldbank.org/indicator/
NY.GDP.MKTP.CD?locations=NG
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2020 $9,405 BEA data available at BEA : Nigeria –
International Trade and Investment
Country Facts
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2020 $132 BEA data available at BEA : Nigeria –
International Trade and Investment
Country Facts
Total inbound stock of FDI as % host GDP N/A N/A 2020 0.55% https://data.worldbank.org/indicator/
BX.KLT.DINV.WD.GD.ZS?locations=NG
 

* Source for Host Country Data: Nigerian Bureau of Statistics

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $74,256 100% Total Outward $13,213 100%
Netherlands, The $13,640 18% United Kingdom $2,380 18%
United States $9,405 13% Netherlands, The $1,217 9%
France $8,798 12% Bermuda $1,014 8%
United Kingdom $8,132 11% Ghana $917 7%
Bermuda $7,696 10% Norway $808 6%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

South Korea

Executive Summary

The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector. Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 37 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2022.

Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector. A more benign regulatory environment will be crucial to foster innovative technologies that could fail to mature under restrictive regulations that do not align with global standards. The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman inside the Korea Trade-Investment Promotion Agency (KOTRA) to address the concerns of foreign investors. In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors, adding mobility and biohealth in 2021 and 2022. Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders.

The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market. Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights. With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK. Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism.

The ROK has taken a transparent approach in its COVID-19 response, under the leadership of the Korea Disease Control and Prevention Agency. Public health experts brief the public almost every day and the public has largely complied with social distancing guidelines and universal mask-wearing. These measures largely staved off the disease through the end of 2021, by which time over 80 percent of Koreans had been vaccinated and the government began relaxing social distancing measures. In February and March 2022, however, a new wave fueled by the omicron variant rapidly spread, peaking at over 621,000 positive cases on March 17. As of March 28, 2022, more than 12 million Koreans have tested positive for COVID-19 and total infections rose over ten million and deaths mounted. The pandemic’s economic impact has been limited. GDP dropped a mere one percent in 2020 before recovering by four percent in 2021, in part due to aggressive stimulus including more than USD 220 billion in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The economic impact of the omicron outbreak remains uncertain, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions and high energy prices, going forward.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 32 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 5 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $33,888 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $32,960 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

7. State-Owned Enterprises

Many ROK state-owned enterprises (SOEs) continue to exert significant control over the economy. There are 36 SOEs active in the energy, real estate, and infrastructure (i.e., railroad and highway construction) sectors. The legal system has traditionally ensured a role for SOEs as sectoral leaders, but in recent years, the ROK has sought to attract more private participation in the real estate and construction sectors. SOEs are currently subject to the same regulations and tax policies as private sector competitors and do not have preferential access to government contracts, resources, or financing. The ROK is party to the WTO Government Procurement Agreement; a list of SOEs subject to WTO government procurement provisions is available in Annex 3 of Appendix I to the Government Procurement Agreement (GPA). The state-owned Korea Land and Housing Corporation enjoys privileged status on state-owned real estate projects, notably housing. The court system functions independently and gives equal treatment to SOEs and private enterprises. The ROK government does not provide official market share data for SOEs. It requires each entity to disclose financial information, number of employees, and average compensation figures. The PIMA gives the Ministry of Economy and Finance oversight authority over many SOEs, mainly pertaining to administration and human resource management. However, there is no singular government entity that exercises ownership rights over SOEs. SOEs subject to PIMA must report to a cabinet minister. Alternatively, the ROK President or relevant cabinet minister appoints a CEO or director, often from among senior government officials. PIMA explicitly obligates SOEs to consult with government officials on budget, compensation, and key management decisions (e.g., pricing policy for energy and public utilities). For other issues, government officials informally require either prior consultation or subsequent notification of SOE decisions. Market analysts generally acknowledge the de facto independence of SOEs listed on local security markets, such as the Industrial Bank of Korea and Korea Electric Power Corporation; otherwise, SOEs are regarded either as fully-guaranteed by the government or as parts of the government. The ROK adheres to the OECD Guidelines for Multinational Enterprises and reports significant changes in the regulatory framework for SOEs to the OECD. A list of South Korean SOEs is available in Korean at: http://www.alio.go.kr/home.html . The ROK government does not confer advantages on SOEs competing in the domestic market. Although the state-owned Korea Development Bank may enjoy lower financing costs because of a governmental guarantee, this does not appear to have a major effect on U.S. retail banks operating in Korea.

Sri Lanka

Executive Summary

Sri Lanka, a lower middle-income country with a Gross Domestic Product (GDP) per capita of about $3,680 and a population of approximately 22 million, is experiencing an economic crisis stemming from an unsustainable debt load and perennial deficits on both the international balance of payments and the government budget. The island’s strategic location off the southern coast of India along the main east-west Indian Ocean shipping lanes gives Sri Lanka a regional logistical advantage, especially as India does not have deep-water ports comparable to what Sri Lanka offers. Sri Lanka is transitioning from a predominantly rural-based economy to a more urbanized economy focused on manufacturing and services. Sri Lanka’s export economy is dominated by apparel and cash-crop exports, mainly tea, but technology service exports are a significant growth sector.

Prior to the April 21, 2019, Easter Sunday attacks, the tourism industry was rapidly expanding, but the attacks led to a significant decline in tourism that continued into 2020 and 2021 due to COVID-19 and the government’s related decision to close its main international airport for commercial passenger arrivals in March 2020. After reopening to visitors early in 2021, tourism revenue for the year reached $261 million, dropping 61 percent year-over-year (YoY) compared to $682 million in 2020. Migrant labor remittances are a significant source of foreign exchange, which saw an increase in 2020 due to the collapse of informal money transfer systems during the pandemic, despite the job losses to Sri Lankan migrant workers, especially in the Middle East. However, worker remittances saw a decline of 22.7 percent in 2021, largely due to inflationary pressures and the expectation of a future depreciation of the exchange rate, which occurred in March 2022. Remittances totaled $5.4 billion for 2021 in comparison to $7.1 billion in 2020.

The administration of President Gotabaya Rajapaksa, who was elected in November 2019, has attempted to promote pro-business positions, including announcing tax benefits for new investments to attract foreign direct investment (FDI). As outlined in its election manifesto, the Rajapaksa government’s economic goals include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets. However, COVID-19 and the subsequent lockdowns brought new economic challenges, forcing the government to adapt policies to the situation on the ground. In April 2020, the Ministry of Finance restricted imports of luxury and semi-luxury consumer products such as consumer durables, motor vehicles, and the import of certain agricultural products as a means of saving foreign reserves and creating employment in labor intensive agriculture. Further restrictions on goods deemed non-essential were added in March 2022. With the IMF estimating a public debt-to-GDP ratio at 118.9 percent (of which 65.6 percent is foreign debt), Sri Lanka is facing a liquidity crisis that is exacerbated by an increasing trade deficit. Exports have helped buoy Sri Lankas FX reserves, growing 19.9 percent in 2021. However, imports continued to outstrip this growth by a significant margin with an increase of 46.8 percent in 2021. Exports of goods increased by 24.4 percent to $12.5 billion in 2021, up from $10 billion in 2020. Exports of services for the year 2020 amounted to $3 billion, down from $7.5 billion in 2019.

In September 2021, the government committed to cease building new coal-fired power plants and achieve net-zero carbon emissions by 2050 at the United Nations International Energy Forum. Sri Lanka has set a target of achieving 70 percent of all its electricity generation from renewable sources by 2030. However, renewable energy companies accuse the Ceylon Electricity Board of being in arrears to the tune of $60 million (as of May 2022) after not paying for renewable energy supplied to the national grid since August 2021.

FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports, and telecommunications in recent years. With a growing middle class, investors also see opportunities in franchising, information technology services, and light manufacturing for the domestic market. The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aiming to provide “one-stop” services for foreign investors. The BOI is committed to facilitating FDI and can offer project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances.

Sri Lanka’s GDP grew by 3.6 percent according to the International Monetary Fund (IMF) in 2021 and is expected to grow by 3.3 percent in 2022. FDI rose to approximately 0.9 percent of GDP in 2021, higher than the 0.5 percent in 2020 and 0.8 percent in 2019 and half of the 1.8 percent in 2018. The IMF projects a GDP growth of 1.2 percent in 2022.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 102 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 95of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD $165 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 USD $3,720 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

7. State-Owned Enterprises

SOEs are active in transport (buses and railways, ports and airport management, airline operations); utilities such as electricity; petroleum imports and refining; water supply; retail; banking; telecommunications; television and radio broadcasting; newspaper publishing; and insurance. Following the end of the civil war in 2009, Sri Lankan armed forces began operating domestic air services, tourist resorts, and farms crowding out some private investment. In total, there are over 400 SOEs of which 55 have been identified by the Sri Lanka Treasury as strategically important, and 345 have been identified as non-commercial.

Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007, and it weathered the global economic crisis of 2008-2009 better than most countries, establishing itself as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system. However, over the last several years, economic and democratic reforms have stalled and by some measures regressed. GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year. Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019. Turkey’s expansionist monetary policy pushed Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated. In 2021, Turkey’s GDP grew 11 percent year-over-year (YOY), the highest growth rate in ten years. However, this year growth is expected to be around 3.3 percent, but with significant downside risks. The spending of over USD 100 billion in foreign reserves in a vain attempt to stop the lira’s devaluation, and unorthodox monetary policies that have fueled inflation have left Turkey vulnerable to external shocks.

Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute depreciation of the Turkish lira. In September 2021, the Central Bank of Turkey embarked on a series of rate cuts that lowered the key interest rate by 500 basis points, leaving real rates deeply negative. Inflation in 2021 was 48.7 percent and unemployment 11.2 percent, with a slight recovery in labor force participation (52.9 percent).

Macroeconomic instability and the government’s push to require manufacturing and data localization in many sectors have negatively impacted foreign investment into the country. Turkey has maintained its 2020 digital service taxes but agreed to a plan to rescind the tax once pillar one of the OECD Inclusive Framework on a global minimum tax is implemented. Other issues of importance include tax reform and the decreasing independence of the judiciary and the Central Bank.

Laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media platforms, online marketing, online broadcasting, tax collection, and payment platforms. ICT and other companies report Government of Turkey (GOT) pressure to localize data, which the GOT views as a precursor to greater access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and E-money Institutions also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey.

Regulations on data localization, internet content, and taxation/licensing have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

In 2020, a law requiring social network providers (SNPs) that serve more than one million users in Turkey to appoint a domestic representative entered into force. The SNPs in-country representatives are obliged to accept service of documents from the Information and Communication Technologies Authority (ICTA), which mainly requests removal of content on the grounds of articles 9 and 9/A of local Law No. 5651. The SNP’s country representative must be a Turkish citizen or a legal person registered in Turkey, and easily accessible to local users.

The immediate impact of the COVID-19 pandemic on the economy was sharp, but Turkey managed to contain the number of COVID-19 cases relatively effectively with targeted lockdowns and thanks to its strong health-services infrastructure. The tourism sector, which generates demand for products and various service sectors, was particularly affected. The GOT provided support to protect corporate liquidity, employment, and household incomes. Government investment incentives were refined during the pandemic to attract FDI and encourage green investments. The pandemic exacerbated structural challenges related to high unemployment and the country’s widespread informal economy, which hit the informal sector workers and the self-employed the hardest. While there has been progress in creating quality jobs over the past 15 years, the number of jobs decreased after both the 2018 financial turmoil and because of COVID-19.

Turkey ratified the Paris Agreement in 2021 and continues to make progress on its green initiatives. Turkey’s FDI incentive packages are updated regularly, and in 2021 they were altered to include more incentives targeted at green projects as identified by the Ministry of Industry and Technology.

The opacity and inconsistency of government economic decision making, and concerns about the government’s commitment to the rule of law, have led to historically low levels of foreign direct investment (FDI). While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy. Investment inflows in 2021 were USD 14.1 billion, an increase of 19 percent from 2019 and the highest rate in the last five years. However, real estate acquisition by foreign nationals accounted for 41 percent of the total inflows in 2021 with USD 5.8 billion, and equity capital inflows were the biggest slice of the FDI pie with USD 7.6 billion. Increased protectionist measures continue to add to the challenges of investing in Turkey. Progress in combatting corruption is also necessary for many of the GOT’s current and future policies to work effectively.

Turkey’s investment climate is positively influenced by its favorable demographics and prime geographical position, providing access to multiple regional markets. Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations. Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 41 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $5,814 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $9,050 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $795,950 2020 $719,920 * www.turkstat.gov.tr
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $1,430 2020 $5,814 BEA data available athttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 

*https://evds2.tcmb.gov.tr/index.php?/evds/dashboard/4944

Host country’s FDI in the United States ($M USD, stock positions) 2020 $1,557 2020 $2,578 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 19.9% 2019 21.9% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World percent20Investment percent20Report/Country-Fact-Sheets.aspx   

* www.tcmb.gov.tr

The IMF’s Coordinated Direct Investment Survey (CDIS) data is not consistent with Turkey’s data as reported by the Central Bank of the Republic of Turkey, which can be found at: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Odemeler+Dengesi+ve+Ilgili+Istatistikler/Uluslararasi+Yatirim+Pozisyonu/

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (through 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 124923 100% Total Outward 50,726 100%
Qatar 32,445 26% North Macedonia 19,668 39%
North Macedonia 17,994 4% United Kingdom 5,211 10%
United Kingdom 13,083 10% Germany 2,561 5%
Germany 9,360 7% Austria 2,286 .5%
Luxembourg 5,291 4% Jersey 2,285 4.5%
“0” reflects amounts rounded to +/- USD 500,000.

IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

Zimbabwe

Executive Summary

Zimbabwe suffered serious economic contractions in 2019 and 2020 due to the economic mismanagement, the extended effects of the COVID-19 pandemic, and climate shocks that crippled agriculture and electricity generation. According to the government of Zimbabwe, the economy recovered strongly, growing by 7.8 percent, in 2021 although the International Monetary Fund (IMF) estimates the economy grew by 6.1 percent, thanks to increased agricultural production, high commodity prices, and improved capacity utilization in the manufacturing sector. The government expects the economy to grow by 5.5 percent in 2022 as the negative impacts of COVID-19 subside. International financial institutions also project positive but more modest growth, with the IMF forecasting a real GDP growth of 3.1 percent in 2022. Inflation remained high in 2021, but steadily declined to end the year at 60.6 percent. Authorities attributed the decline to the introduction of a weekly foreign exchange auction system in June 2020 and fiscal consolidation that resulted in near balanced budgets in 2020 and 2021. However, the inflation rate has continued to rise to 72.7 percent by March 2022 due to the negative effects of the Russia-Ukraine war on commodity prices as well as the depreciation of the Zimbabwe dollar. Zimbabwe’s local currency has lost 79 percent of its value relative to the U.S. dollar since the government adopted an auction system on June 23, 2020. A gap between the auction and parallel-market exchange rates has persisted, with U.S. dollars more than twice as expensive on the parallel market.

To improve the ease of doing business, the government formed the Zimbabwe Investment and Development Agency (ZIDA) in 2020, intended as a one-stop-shop to promote and facilitate both domestic and foreign investment in Zimbabwe. Zimbabwe’s incentives to attract FDI include tax breaks for new investment by foreign and domestic companies, and making capital expenditures on new factories, machinery, and improvements fully tax deductible. The government waives import taxes and surtaxes on capital equipment. It has made gradual progress in improving the business environment by reducing regulatory costs, but policy inconsistency and weak institutions have continued to frustrate businesses. Corruption remains rife and there is little protection of property rights, particularly with respect to agricultural land. Historically, the government has committed to protect property rights but has also expropriated land without compensation.

The Finance Act (No 2) at the end of 2020 amended the Indigenization Act by removing language designating diamonds and platinum as the only minerals subject to indigenization (requiring majority ownership by indigenous Zimbabweans), finally ending indigenization requirements in all sectors. However, the new legislation also granted broad discretion to the government to designate minerals as subject to indigenization in the future. The government subsequently issued statements to reassure investors that no minerals will be subject to indigenization, including diamonds and platinum.

The government ended its 2019 ban on using foreign currencies for domestic transactions in March 2020. However, the authorities decreed businesses selling in foreign exchange must surrender 20 percent of the receipts to the central bank in exchange for local currency at the overvalued auction rate. Exporters must surrender 40 percent of foreign currency earnings at the unfavorable auction rate.

Zimbabwe owes approximately US$10.7 billion (US$6.5 billion of which is in arrears) to international financial institutions accounting for 71 percent of the country’s GDP. The country’s high external debt (public and private) limits its ability to access official development assistance at concessional rates. Additionally, domestic banks do not offer financing for periods longer than two years, with most financing limited to 180 days or less. The sectors that attract the most investor interest include agriculture (tobacco, in particular), mining, energy, and tourism. Zimbabwe has a well-earned reputation for the high education levels of its workers.

Although the United States has a targeted sanctions program against Zimbabwe, it currently applies to only 83 individuals and 37 entities.  The U.S. Government imposed sanctions against specifically identified individuals and entities in Zimbabwe, as a result of the actions and policies of certain members of the Government of Zimbabwe and other persons that undermine democratic institutions or processes in Zimbabwe, violate human rights, or facilitate corruption.  U.S. companies can do business with Zimbabwean individuals and companies that are not on the specially designated nationals (SDN) list.

After reaching US$745 million in 2018, Zimbabwe witnessed significant declines in foreign direct investment (FDI). According to data from the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into Zimbabwe fell from US$280 million in 2019 to US$194 million in 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 157 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 113 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 (D) https://apps.bea.gov/international/factsheet/  
World Bank GNI per capita 2020 USD 1,140 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD   

(D) – Information suppressed to avoid disclosure of data of individual companies.

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

6. Financial Sector

7. State-Owned Enterprises

Zimbabwe has 107 state-owned enterprises (SOEs), defined as companies wholly owned by the state. A list of the SOEs appears here . Many SOEs support vital infrastructure including energy, mining, and agribusiness. Competition within the sectors where SOEs operate tends to be limited. However, the government of Zimbabwe (GOZ) invites private investors to participate in infrastructure projects through public-private partnerships (PPPs). Most SOEs have public function mandates, although in more recent years, they perform hybrid activities of satisfying their public functions while seeking profits. SOEs should have independent boards, but in some instances such as the recent case of the Zimbabwe Mining Development Corporation (ZMDC), the government allows the entities to function without boards.

Zimbabwe does not appear to subscribe to the Organization for Economic Cooperation and Development (OECD) guidelines on corporate governance of SOEs. SOEs are subject to the same taxes and same value-added tax rebate policies as private sector companies. SOEs face several challenges that include persistent power outages, mismanagement, lack of maintenance, inadequate investment, a lack of liquidity and access to credit, and debt overhangs. As a result, SOEs have performed poorly. Few SOEs produce publicly available financial data and even fewer provide audited financial data. SOE poor management and lack of profitability has imposed significant costs on the rest of the economy.

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The Lessons of 1989: Freedom and Our Future