Security, freedom and investments. A look at the UNCTAD report

Recently was published the report by UNACD which revue the investments on a global scale.

For a third consecutive year the flow of direct foreign investments (DFI) on a global scale for 2006 increased by 38% and have reached 1 306 billion dollars. The growth of DFI can be observed in all three basic groups of countries: developed, developing and the countries in transition. The increase of DFI is partially caused by the high corporate profits, which reflects in the prices of the stocks on the World markets. Another fundamental factor is the realization of mergers and buyouts, which is implemented by a large number of DFI's in the countries. The large corporate profits and the reinvestment of part of them in buying stocks abroad are a significant component of DFI in the various countries.

The report notes the positive trend of the government policies around the World, which are aimed at optimizing the regulatory environment for doing business. On a global scale, 147 changes have been made in the policies of the countries, during 2006, which intend to improve the environment for doing business.  Approximately 74% of those are made in the developing countries. Some of the main directions of the governments work had been towards the reduction of corporate taxes and greater liberalization of various sectors of the economies.

The direct foreign investments in the region of Southeast Europe have increased with 68% and have reached 69 billion dollars. Bulgaria is among the five countries (Russia, Romania, Kazakhstan, the Ukraine and Bulgaria) in the region which have attracted most DFI. These countries accumulate 82% of the total investments in the region.

On the World investment map Bulgaria (for the period 2004 – 2006) had reached the prestigious seventh place in attracted investments as a percentage of the GNP.

The policies implemented and more accurately the signals which they send to the foreign investors are a decisive factor for the investor to choose a given country or not.    

Positive signals:

  • Macroeconomic stability expressed in: stable currency, low inflation, observing the undertaken obligations; leading a fiscal policy which is orientated forwards the possible reduction of spending in the public sector, lower tax burden, lower level of redistribution through the state of the income created by the real sector; at cetera;
  • Political stability;
  • Foreseeable policies;
  • Confidence in the policies;
  • Carrying out of (competitive) reform policies: competitive policies in the area of education, effective state administration, competitive tax policy, effective judiciary system, clear and simple rules for conducting business. In general the government must implement such policies which will help to increase the competitive advantage of the country;
  • Stable banking system and developed financial markets;

Negative signals could be, in general, expressed by loss of confidence by the foreign investor of the policies implemented by the state. They could be expressed in swift changes in fiscal policy (from restrictive to expansion or vice versa) of the country, (which will affect the labor market, the price levels of the banking and financial sectors, the competitiveness, currency stability and the like) the lack of transparency in the policies by the government and degrading of the conditions for doing business.

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