HCMs can target investments of particular size, such as large, medium-sized or small OFDI projects. Such measures are common in the area of regulations, with foreign exchange restrictions and approval procedures made less rigid for smaller investments where the economic and social implications are less significant. For smaller projects, the risk is lower that investments lead to large-scale financial losses and capital flight, result in significant offshoring or undermine competitive neutrality (see Section E: Potential risk factors).
Smaller investments might be exempt altogether from investment approval and foreign exchange restrictions, while larger investments might have to go through stricter approval procedures, or there may be registration requirements, such as with the central bank. Smaller investments might only need local approval, while larger investments might require approval by the central government.
Key insights
- HCMs can be targeted at investment projects of particular size, such as small, medium or large projects.
- Targeting by investment size is common for the specification of threshold amounts beyond which approval procedures or foreign exchange restrictions apply. By requiring approval beyond a certain investment size, these thresholds can reduce some of the risks associated with large OFDI projects. Otherwise, targeting by investment size is less common.
Interactions
B4) Investment size: Home-country measures can be targeted at investments of a specified size, such as large, small or medium-sized.
C2) Regulations: There are usually threshold amounts beyond which investment approval needs to be sought or foreign exchange restrictions apply. These thresholds can reduce some of the risks associated with large OFDI projects.
C4) Financial support: Financial support measures can be targeted at investments of a specified size.
C7) Treaties: MNEs are more likely to take investment treaties into consideration when the size of their investment is large.
C8) Operational support: Operational support can be targeted at investments of particular size.
Available Research Findings
Many countries restrict OFDI or make it subject to approval. Sometimes these regulations only take effect above a specified investment size. Relevant information can be found in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).
(see sections XI.A.5.a. on outward direct investment)
Existing Country Practices
Targeting by investment size in India: India allows OFDI projects to go ahead under its automatic route (not requiring approval) up to a limit, specified as a prescribed percentage of the company’s net worth.
Targeting by investment size in Spain: ICO’s direct financing facilities are available for the development of large investment projects.
Resources
Many countries restrict OFDI or make it subject to approval. Sometimes these regulations only take effect above a specified investment size. Relevant information can be found in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).
(see sections XI.A.5.a. on outward direct investment)