LESS DEVELOPED COUNTRIES: THE PRIVATE INVESTMENT OPTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85B00652R000100050016-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 50
• Document Creation Date: December 22, 2016
• Document Release Date: January 19, 2011
• Sequence Number: 16
• Publication Date: May 17, 1983
• Content Type: MEMO

Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016.3 -'
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence.
VIA : Deputy Director for Intelligence
Director of Global Issues
SUBJECT : Less Developed Countries: The Private Investment Option
1. Action. This paper responds to your request of 26 February 1983 for a look
at what Western investment could do to help reverse the downward economic spiral in
LDCs important to the US. You requested that it be prepared for Secretary Shultz and
perhaps the President to focus their thinking on the aid-investment issues likely to arise
at the Summit.
2. Background. The accompanying package of background material contains
information on the role of private investment versus aid, OECD investment support
programs, and the USSR's joint ventures in LDCs. Part or parts of it could be pulled out
and attached to the paper - for example, the descriptions of investment support
programs for just the seven Summit countries.
3. Little detailed information is available concerning investment opportunities
in the LDCs. Examination of AID reports yielded mostly information of a general
nature. We fared somewhat better with OPIC project appraisals but there, too, reporting
is limited to a few countries and projects.
MAff T DENT T A_L
25X1
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Distribution:
Orig r DCI
1 DDCI.
1 - ExDirector
1 - ExRegistry
1 - SpAsst to DCI
1 - ES
1 - DDI
1 - ADDI
OGI/ECD/TW:
1 Henry S. Rowen, NIC
1 - D/OGI
1 - OGI/ECD
1 - OGI/ECD/TW
8 - OGI/PUB
(16 May 83)
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Central Intelligence Agency
LESS DEVELOPED COUNTRIES: THE PRIVATE INVESTMENT OPTION (U)
Summary
Private resource flows are the principal source of external capital for
development in LDCs, particularly those that are m ore advanced and strategically
important. Private flows not only exceed official development assistance, they also
serve many of the same Western political and economic interests. Private investment
can de m onstrate the ability of the free market system to benefit all segm ents of society,
increase chances for political and economic stability, and augment the gro wth potential
of Western export markets. Many of the key L D Cs have favorable investment climates,
and the amount of money needed for projects that provide fast and visible improvements
in living standards is relatively sm all. Host govern m ents and investm ent missions have
identified a number of opportunities for foreign private investm ent in L D Cs which could
be mutually beneficial to both L D C development goals and Western interests.
All of the OECD countries have programs on the books designed to spur private
investment flows to LDCs. We do not know the degree to which these programs
encourage new investment. The worldwide recession and concurrent budgetary
constraints in the Member countries have probably led to a reduction in such programs.
Soviet participation in LDC private sector activities has so far been limited largely to
joint venture fishing agreements, with trading, marketing, and freight companies playing
a sm all part in about 10 countries.
This memorandum was prepared by I Third World Issues Branch,
Office of Global Issues. The information contained herein is updated to 9 May 1983.
Com m ents may be addressed to Chief, Third World Issues Branc
GI M 83-10134
May 1983
CONFIDENTIAL
25X1
25X1
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Less Developed Countries: The Private Investment Option
Introduction
Thirty years of domestic savings and investment, supplemented by foreign aid and
private capital flows, contributed to an unprecedented era of growth in less developed
countries (LDCs). According to the World Bank, between 1950 and 1975 LDC annual per
capita income growth averaged 3.4 percent, faster than either developed or developing
nations' growth in any comparable period before 1950. Although LDC growth rates
declined in the late 1970s, primarily as a result of worldwide recession, a foundation for
self-sustaining growth and future private investment was established in many key LDCs.
Role of Official Aid
Public attention and North-South negotiations tend to focus on levels of official
development assistance (ODA). This emphasis misses the fact that in each year since
1968, flows of private resources - of which private investment currently comprises
about 25 percent - have exceeded official aid (See Figure). Today, the ratio between
private capital and aid flows stands at more than two to one. Official development
assistance will continue to be an important source of supplementary financing,
particularly for the poorest LDCs that have poor resource endowments and offer few
opportunities for foreign investors. These countries are generally unable to secure
commercial financing and have low capacities for generating the domestic savings
required to achieve increased growth. In addition, aid will continue to serve
humanitarian considerations and diplomatic requirements. However, in the more
advanced developing countries, many of which are strategically important to the West,
private capital will be the dominant source of external finance in the future, as it is
today.
- 1 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
NET FLOWS FROM DAC COUNTRIES TO LDCS,
SELECTED YEARS, 1962-1981
Legend
? DIRECT INVESTMENT
? PRIVATE CAPITAL
? ODA
1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1981
YEARS
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Western Investment: Strategic Benefits
Private investment in key LDCs can bolster both the economic and security
interests of the United States and its allies by:
o Further strengthening ekisting economic and political institutions in
the LDCs and increasing chances for stability.
o Providing a tangible demonstration of the ability of the market system
to create employment and production leading to improvements in living
standards in the LDCs.
o Contributing to the establishment of a Western presence with
institutional linkages to influential sectors of LDC economic and
political systems.
o Enhancing the ability of LDCs to become trading partners with the
West.
Western Investment: Problems for the West
Although Western private investment in LDCs provides significant strategic and
economic advantages for investors' governments, it also can adversely affect bilateral
government relations when:
o LDC governments believe they are being exploited by foreign firms.
o Assets are expropriated without adequate compensation.
o Foreign investors become the target of political dissidents or
terrorists.
o Investors put pressure on home governments to undertake efforts
intended to support investor interests.
o A successor regime closely identifies Western investors with a corrupt
or unpopular previous government. 25X1
Western Investment: Benefits for LDCs
From the LDC perspective, Western investment can offer significant economic
and political advantages. These are enhanced during times of economic distress when
investment capital is scarce and a government's need to demonstrate economic progress
is intensified. Our research indicates that LDCs such as Angola, India, and Burma are
becoming more pragmatic in their dealings with Western investors because they have
recognized the need for their capital and expertise. Western investment can benefit
LDCs by:
- 2 -
MRTF TTIPMPT AT.
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
o Injecting long-term financing, technology, training, and management
and marketing expertise into their economies.
o Leading to structural economic shifts and income redistribution.
o Stimulating domestic entrepreneurship and further employment
creation through backward and forward economic linkages such as the
purchase of raw or semi-finished materials from local firms or
supplying inputs to local manufacturers.
Western Investment: Problems for LDCs
Substantial inflows of foreign capital can have negative economic and political
effects on host governments because:
o Technologies employed by foreign investors can be very capital
intensive, creating few jobs and necessitating increased imports of
capital equipment.
o Foreign firms may preempt the best investment opportunities and may
gain privileged access to scarce local capital, crowding out local firms
instead of adding to the total capital stock of the host country.
o Growing competition among the LDCs for private investment capital
has led many to offer a similar range of costly incentives, such as tax
holidays and relief from import and export duties, which reduce
government revenues and may lead to economic distortions.
o Profit repatriation by the foreign investor could lead to a net loss of
foreign exchange. 25X1
Small-scale Investment Projects: Case Studies of Potential Impact
LDC governments have underestimated and in some cases ignored the
beneficial developmental impact of small businesses and even cottage industries.
They have usually catered to large investors, partly because large corporations are
often much more willing to assume large risks and more able to obtain loan capital
than smaller firms. Smaller businesses help acheive government goals through
industrial decentrialization, employment generation, and income redistribution in
rural areas. Because they can often be located away from major business centers,
small-scale industries are advantageous to LDCs, particularly when transport
costs are high because of long distances to interior markets or when the product is
heavy, bulky, or perishable. Labor-intensive industries of this scale are also likely
- 3 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
to use a high percentage of local inputs rather than imports. In addition to
traditional export oriented production, food and other agricultural processing, the
manufacture of building materials, and meat and dairy product preparation are
particularly well-suited to decentralized, smaller units near input sources.
Service and repair shops are also ideally located in or close to the markets they
serve.
Case studies of a number of projects that have been guaranteed or financed
by OPIC over the past few years illustrate the development potential of small
investments:
In Thailand, a project to dry, pelletize, and ship tapioca for export will
provide training and employment for 185 people in a poor rural area,
transfer new technology, and increase foreign exchange earnings.
In Costa Rica, expansion of acreage for a tropical houseplant export
project will generate some 500 new jobs and is expected to earn $10
million in foreign exchange over a five year period.
o In Rwanda, expansion of a tea factory will create 103 jobs, generate
$3.4 million in foreign exchange earnings, and provide an expanded
market for 3,000 farmers who belong to the cooperative which sells tea
to the factory.
o In Haiti, two plants currently employ more than 400 Haitians who use
traditional weaving skills to make parts for high quality office
furniture.
o In Pakistan, a project to produce ethical pharmaceutical products will
ultimately employ 139 workers and save the Pakistani government $35
million in foreign exchange annually.
o In Dominican Republic, expansion of a meat processing plant will
provide 51 new jobs and will improve the quality and quantity of meat
available to the domestic market, as well as some for export.
o In Sudan, expansion of a small cargo service business will create 26 new
jobs and include training in equipment maintenance and operation.
o In Peru, a fish processing plant to produce a high-protein food
ingredient for local consumption and export will create 125 jobs in an
area of high unemployment and generate significant foreign exchange
earnings.
o In Kenya, a hybrid flower and vegetable seed production and processing
facility will create some 80 jobs and support government plans to
increase agricultural productivity and labor-intensive exports.
- 4 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
o In Sri Lanka, expansion of a rubber tire manufacturing company will
create 92 local jobs and introduce advanced molding technology to the
country.
o In the Yemen Arab Republic, a small contract well-drilling business
will drill, construct, and service water wells for private, agricultural,
and industrial use.
o In Honduras, expansion of a small condiment packaging and processing
will create an estimated 30 jobs in an import-substitution project.
o In Egypt, a plant to assemble electronic video components will provide
training and employment for 122 people in a rural area, in addition to
earning $1.15 million annually in foreign exchange.
o In Guatemala, expansion of a small frozen vegetable processing and
packaging business will increase the local network of contract growers
by 300 and will generate foreign exchange. In addition, the company
also provides technical and financial assistance to its network of 1,200
local contract growers.
OPIC also gives Investment Encouragement Loans and Grants to non-profit
organizations for relending to small local entrepreneurs. In 1981, one of these
corporations gave support to five small businesses in the Caribbean area which in turn
created 170 jobs.
Opportunities for Supporting Private Investment in LDCs
Studies undertaken by bilateral, multilateral, and host government entities have
identified many opportunities for private foreign investment in LDCs. We have reviewed
those studies and selected highlights of their findings-both positive and negative-for a
number of key countries. We have supplemented their findings with US Embassy
reporting.
Mid East/Africa
Egypt
Investment o Open door policy toward foreign investment
Climate
o Law 43 gives preference to projects that will reduce
basic imports, generate foreign exchange, use
advanced technology or patents of well-known
products, or. encourage tourism.
- 5 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
o Benefits available to foreign investors under Law 43
are sometimes difficult to obtain in practice.
o Private firms are wary of the special treatment
accorded the public sector firms with which they
of ten, compete.
Opportunities o Government officials have said they will give high
priority to projects designed to satisfy basic mass
consumption needs.
o A recent study by a major US bank identified
opportunities for joint ventures with both public and
private sector firms in the manufacture of: starch,
glucose, and syrup from corn; nontraditional
confectionery items such as biscuits, chocolates, and
candy; dehydrated vegetables and soups; and
processed poultry.
o Joint venture possibilities exist in the pharmaceutical
sector for medical supplies and drug containers.
o Manufacturing options include production of such
items as small hand power tools, irrigation pumps,
small air compressors, incandescent light bulbs and
flourescent tubes, and fire and burglar alarm system
components.
Support o The US Government currently administers a number
of programs to assist the Egyptian private sector
such as:
- the Trade Opportunities Program
- the Trade Financing Facility
- trade and investment counseling.
Sudan
Investment
Climate
o Uniform investment code for both foreign and
domestic investors.
o Foreign exchange shortages, poor basic
infrastructure, scarce skilled labor, and bureaucratic
inertia have kept foreign investment outside the
petroleum sector to a minimum.
Opportunities o The US Embassy in Khartoum believes there is
potential, particularly in agro-industry, for firms that
are willing to take the long view.
Support o We believe aid will have to continue to play a strong
role in Sudan's economic picture because of investor
wariness and the country's difficulties in obtaining
- 6 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Kenya
Investment o Business activities have been hampered in recent
Climate years by foreign exchange restrictions, price
controls, excessive red tape, and the government's
failure to implement many stated policies.
o Measures intended to restore investor confidence
announced after last August's coup attempt include a
new investment center, an export compensation
scheme, and an easier system for obtaining
expatriate work permits.
o Incentives are offered to firms locating outside the
Mombasa and Nairobi metropolitan areas.
Opportunities o The government prefers investments that earn or
conserve foreign exchange and involve some degree
of foreign equity participation.
o The IBRD has identified agribusiness opportunities
for foreign investors including: import substitution
industries such as small electric appliances; new
industries such as low-cost pre-fab housing; and
export industries based on agricultural product
processing such as jojoba, eucalyptus and castor oil
extraction, cassava chips and pellets, secondary wood
processing, and fruit and vegetable canning.
Support o Kenyan financial institutions need assistance in
developing and financing agribusiness projects.
Morocco
Investment
Climate
o The industrial transportation infrastructure needs
further development.
o Training in management and market research would
likely help Kenya's export performance. 25X1
o Private foreign investment is actively encouraged,
and policies are clearly stated in six sectoral
investment codes.
o Certain types of businesses, primarily in the service
sector, must have at least 50 percent Moroccan
ownership. However, up to 100 percent foreign
equity ownership is possible in selected industries,
including tourism.
o Incentives include exemption from various taxes and
duties, low-cost loans from domestic financial
institutions, and subsidized land purchases for eligible
projects.
- 7 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl\i SLL1\ 1 SLiL
o A large debt burden, continuing current account
deficits, and arrearages to local suppliers are
dampening business confidence.
Opportunities o The government is creating twenty-five new
industrial zones focusing on small- and medium-sized
businesses.
o Industries such as fishing and tourism are actively
promoted and offer opportunities for further
diversification and expansion.
o Mechanical and electrical industries have also
received priority in order to reduce Morocco's heavy
dependence on imported capital goods.
Support o We believe development of Morocco's significant
agricultural potential would be enhanced by training
and technical assistance, particularly in dry land
agriculture.
Ivory Coast
Investment
Climate
o Significant incentives are granted to investments in
agribusiness, real estate development, and the
manufacture and assembly of mass consumer goods.
o Strong, liberal regulatory framework.
o Investment application procedures are lengthy, but
attractive export-oriented projects are usually
processed without delay.
Opportunities o The government favors diversification of the
agricultural base, industrial development of interior
areas, and projects that employ large numbers of
Ivorians.
o Coffee, cocoa, and sugar processing, cloth dying and
cloth production, fruit canning, and edible oil refining
are projects considered promising by the government.
o Some agricultural exports-such as wood-which
currently undergo primary processing could be
processed further to increase their value added.
Support o More work is needed to strengthen the project
identification/formulation system and local
marketing and market research skills.
o Capital markets should be expanded.
- 8 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Central America/Caribbean
Jamaica
Investment o The government vigorously promotes foreign
Climate
investment and offers a number of incentives.
o The relatively stable political climate, low wages,
well-developed economic and financial institutions,
and advantageous location are all attractive to
investors.
o Deterrants to potential investors include capital
shortages, deteriorating power and water
infrastructure, recent financial difficulties, deficient
manpower and management skills, and red tape in
project approaval procedures.
Opportunities o Foreign investors will find opportunities in cut flower
exports, fish, shrimp, and lobster farming, electronics
assembly, furniture manufacturing, and tourism.
Support o Jamaica was counting on CBI investment incentive
provisions-which are not likely to be ratified-to
further stimulate US investor interest.
o Much external aid will be needed to keep Seaga's
recovery program going.
o Further assistance in drawing up a private investment
strategy is also warranted.
Costa Rica
Investment
Climate
o The Monge government has made some limited
progress to date with its much-needed economic
reform measures.
The country is endowed with rich agricultural lands
and a well-educated populace.
o Investment incentives offered vary depending on such
factors as the use of local resources, the number of
jobs created, export potential, and whether or not a
similar industry already exists in Costa Rica or in the
Central American Common Market (CACM).
Opportunities o The government strongly encourages foreign
investment in agribusiness.
o Two new free trade zones on the Atlantic and Pacific
coasts offer further opportunities and incentives for
investment.
- 9 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Support o We believe assistance will be needed to further
develop transport, communications, and power
infrastructure.
Haiti
Investment o The government is extremely receptive to foreign
Climate investment, and incentives such as tax holidays, duty
exemptions, and import protection are available to
selected industries.
o Haiti has a plentiful supply of low-cost labor, relative
political stability, and proximity to North American
markets.
o Poor local managerial and technical skills, limited
local capital, and underdeveloped market links
somewhat counterbalance positive factors.
Opportunities o Transformation and assembly industries for such
things as toys, textiles, and handicrafts are well-
suited to Haiti's cheap labor supply.
o Agro-industries are also particularly encouraged by
the government.
Support o We believe an integrated production, processing, and
marketing system must be established before further
agricultural investments can have a significant
impact on the Haitian economy.
o Vocational training will be necessary for more
sophisticated industries.
o Domestic capital markets require development and
expansion before they can play a catalytic role in the
industrial growth process.
o The scarcity of well-defined projects and the absence
of a project development system lessen Haiti's
chances of attracting productive foreign
Philippines
Investment o Manila has an ambivalent attitude toward foreign
Climate investment.
o Foreign equity in local industries is normally limited
by law, but there is warmer treatment of investment
in pioneer and non-traditional export-oriented
industries.
o There are currently five Export Processing Zones-
- 10 -
CONFIDENTIAL
- Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wivr i JJEdN I i tiL4
planned industrial communities complete with power,
water, and other necessities-and the government
plans to eventually develop 10 more in various parts
of the country to encourage further industrial
decentralization.
o Corruption, labor trouble, inadequate infrastructure-
particularly communications and transport-and
occasionally arbitrary application or withdrawal of
government incentives in some areas are drawbacks.
Opportunities o Foreign investment in labor-intensive and export-
oriented industries is particularly favored by the
government.
o The IBRD and the government have identified small-
scale power loom weaving, processing of fruit for
domestic consumption and export, fish farming,
metalworking, diversification and upgrading of the
garment industry, and high quality leather footwear
as potential areas for foreign investors.
o Investment in the manufacture of packaging
materials would help eliminate a key production
bottleneck in other areas of Philippine industry.
Support o Better communications infrastructure and improved
distribution channels are needed to facilitate the
flow of raw materials to processing centers.
Thailand
Investment
Climate
o Access of small firms to credit and technical
assistance should be increased. 25X1
o The government welcomes private foreign
investment, particularly in agro-industrial, labor
intensive, export-oriented projects.
o Board of investment assists actual and potential
investors by identifying investment opportunities and
deciding which proposals will qualify for tax and
financial incentives.
o Certain conditions may be imposed regulating source
of capital, nationality and number of employees and
shareholders, and local inputs used.
Opportunities o The Thai Government and USAID have identified
several areas for foreign investment: agribusiness-
related projects including reconstituted dairy
products, ricemilling, and grain drying and storage;
manufacturing possibilities including consumer
electronic . products and consolidation and
standardization of the farm machinery/implements
- 11 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr 1 L)r;N'1' 1 AL
industry; and an opportunity to establish a world-
scale export project for TV picture tubes.
Support o Thai financial institutions need help in project
identification, packaging, and promotion.
o More trained managers and technicians will be
needed in order to avert a future shortage.
o Project approval time could be shortened by
Pakistan
Investment
Climate
streamlining bureaucratic procedures.
o The investment code is flexible, and each proposal is
considered on an individual basis.
o A number of incentives are provided to encourage
investment in less developed areas of the Northwest
Frontier Province, Baluchistan, Punjab, and the Sind.
Labor costs are low, as is labor productivity due to
low literacy, high rates of absenteeism, poor diets,
and skill deficiencies.
o Despite the government's efforts to improve the
investment climate, credit scarcity, labor laws that
constrain management decisions, a complicated
government approval process, and underdeveloped
infrastructure are deterrents to investors.
Opportunities o The government particularly welcomes foreign
private investment in industries that are capital-
intensive, introduce sophisticated technology,
increase exports, or promote import substitution.
o Over the next five years, foreign investment will be
promoted in textiles, food and beverage processing
and packaging, electronics, metal products, rubber
products, and leather goods.
o Projects for the manufacture of ready-made
garments, tries and tubes, dehydrated vegetables and
other foods, footwear, plate glass, and wooden
furniture would be welcomed by the Investment
Promotion Bureau.
Support o Because of Pakistan's desire to promote high-
technology, capital-intensive production methods, we
believe more ODA will be needed than might
otherwise be required if investments with more local
economic feedbacks were chosen.
- 12 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Indonesia
Investment o Foreign investment has been declining in recent years
Climate in part because of pervasive bureaucratic and
regulatory obstacles and widespread corruption.
o Indonesia's large domestic market, low-wage labor
force, and lack of foreign exchange controls would
probably attract more investors if more favorable
policies were in place.
o Falling oil revenues could lead Jakarta to seek larger
taxes from foreign investors rther than giving greater
consideration to encouraging both foreign and
domestic private investment.
Opportunities o The government seeks high technology, capital
intensive industries as well as projects based on what
are now largely unprocessed exports of timber, palm
oil, and rubber.
Support o Indonesia's power, communications, and transport
facilities require further development.
o Lower oil revenues will likely require government
spending cutbacks and thereby increase the apparent
need for ODA, at least over the short term.
Malaysia
Investment o Liberal investment code.
Climate
o Accelerated depreciation, tax holidays, export
credits, duty exemptions, and other incentives are
available to new investments that contribute to
national development and decentralization plans.
o Although the law generally requires the formation of
joint ventures with a Malaysian majority partner, up
to 100-percent foreign ownership may be approved
for projects manufacturing solely for export.
Opportunities o Kuala Lumpur wants to promote heavy industry and
resource-based manufacturing, as well as
development of Borneo and the east coast.
o Eastern Malaysia offers opportunities for small- and
medium-sized light industrial projects aimed at both
import substitution and export.
Support o Investment in Borneo would be facilitated by
enchanced communications and transport networks.
- 13 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl4l 1 FJ I 1 1 C11J
Sri Lanka
Investment o Market-oriented development strategy.
Climate
o According to Embassy reporting, tax and other
incentives are likely to be reduced over the next few
years.
o Pressure is also likely to mount for increased use of
local raw materials and higher tariffs on imorts of
finished goods.
o Firms exporting 100 percent of their output are
eligible for "free trade zone" status and unlimited
foreign equity ownership.
o Government agencies cannot be counted upon to live
up to agreements reached during negotiations for
investments located outside free trade zones.
Opportunities o Agri-business possibilities for foreign investors
include manufacture of fats and oils, dairy and soy
products, poultry, fruit juices, spices, and yarns.
o Increased production of ground nuts, sesame,
vegetables, and sugar cane would be welcomed by the
government.
o The manufacture of electronic components and
graphite-based products are also investment options.
Support o Priority should be given to project identification and
feasibility studies for labor-intensive, export-
oriented industries.
o Training is needed to beef up Sri Lanka's short supply
of skilled managers, technicians, and administrators.
o Capital markets should be expanded.
- 14 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Less Developed Countries: The Private Investment Option
Background Material
Appendix A OBM Development Support: The Roles of
Private Investment and Official Development
Assistance
Appendix B ODCD Programs to Support Private Sector
Initiatives in LDCs
Appendix C Soviet Participation in LDC Private Sector
Activities
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Appendix A
OECD Development Support: The Roles of Private
Investment and Official Development Assistance
After increasing slowly from 1961 to 1970 net official development assistance
(ODA) flows from OECD countries to the LDCs (Tables 1 and 2) picked up sharply during
the 1971-81 period. The nominal increase in net ODA disbursements since 1970 has been
an impressive 375 percent. Even taking inflation into account, the real increase
amounted to 25 percent. (See Figure) According to the OECD, the decline in real ODA
outflows registered in 1981 was due almost entirely to delays or reductions in
contributions to multilateral banks.
Total net private capital flows to LDCs, which include loans, credits, and portfolio
investments as well as direct investments, began to exceed ODA flows in 1968. They
have risen rapidly since then, largely due to the major expansion of commercial bank
lending which began in 1974.
The US has always contributed the largest proportion of both ODA and direct
investment inflows to the LDCs from the OECD countries, although its share of both has
generally been declining over time. In 1961, the US contributed 57 percent of the
OECD's total net ODA to LDCs. This share declined to 23 percent by 1981. Japan's
share of ODA has shown the most marked rise, from 2 percent of the total in 1961 to 12
percent in 1981 (Table 1). According to the OECD, major increases in aid will likely be
forthcoming over the next few years from France, Italy, and Japan. Further increases in
aid can also be expected from Denmark, the Netherlands, Norway, and Sweden. German,
US, and UK official aid flows will likely stabilize around their current levels.
Total net direct investment flows from OECD countries to LDCs more than
quintupled in nominal terms between 1961 and 1981. In real terms, however, the increase
was slightly more than 80 percent. The US share of OECD net direct private investment
- A 1 -
CONFIDENTIAL
25X1
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr' IDJN`l'lAL
flows to the LDCs declined from 51 percent to 44 percent between 1971 and 1981.
Japan's share showed the largest increase over the period, rising from 7 to 17 percent of
the total.
In our judgment, neither OECD programs nor host country incentives are likely to
induce much foreign investor interest in a number of the poorest countries (LLDCs),
whose minimal resource endowments, small domestic markets, uncertain political
climates, and inappropriate economic policies render most commercial projects
unfeasible. These countries generally did not share in the export boom of the 1970s, and
the volume of their total exports declined by an average of about 1 percent annually
during the decade. Moreover, because the access of these countries to international
capital markets is limited, ODA will necessarily continue to make a large contribution to
the maintenance of their living standards.
Some of the major recipients of ODA - such as Brazil and South Korea - have also
managed to achieve the highest sustained rates of economic growth among the LDCs.
The direct contribution of aid to GNP growth is probably limited, although this point is
difficult to establish empirically. Aid's indirect contributions to GNP growth are likely
substantial, however, through its contributions to health and labor productivity and to the
development of road, electric power, and communications facilities - all of which create
an environment conducive to productive investment of both foreign and domestic
capital.
In LDCs where past ODA flows have played a part in establishing significant
economic infrastructure and increasing productive potential, private capital will become
the principal source of development financing. However, the need for ODA to
supplement government spending for food, health care, and education - which private
investment cannot replace - will continue until government revenues are sufficient to
bear the burden.
- A 2 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Net ODA Flows From DAC Countries To LDCs and Multilateral
Agencies, Selected Years
Million US$
DAC COUNTRY 1961 Sharel 1971 Share 1 1981 Sharel
5;T- -TIZT- -T%---
Australia 74 1 202 3 649 2
Austria 6 * 12 * 313 1
Belgium 95 3 146 2 575 2
Canada 64 1 391 5 1189 5
Denmark 11 * 74 1 403 2
Finland -- -- -- -- 135
France 906 17 1075 14 4177 16
Germany 369 7 734 9 3181 12
Italy 63 1 183 2 666 3
Japan 111 2 511 7 3171 12
Netherlands 59 1 216 3 1510 6
New Zealand -- -- -- -- 68 *
Norway 10 * 42 * 467 2
Sweden 11 * 159 2 916 4
Switzerland 11 * 28 * 237 1
United Kingdom 460 9 562 7 2195 9
United States 2947 57 3324 43 5783 23
5197 100 7759 100 25,635 100
1 Numbers may not add due to rounding.
* Negligible.
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Table 2
Net Direct Investment Flows From DAC Countries To LDCs,
Selected Years
DAC COUNTRY
1961
Share2
1971
Share2
Million US$
1981 Share2
Australia
n/a
--
48
2
159
1
Austria
--
--
--
--
32
*
Belgium
29
1
29
1
123
1
Canada
8
*
76
2
700
5
Denmark
12
*
25
1
66
*
Finland
n/a
--
1
*
17
France
308
13
170
5
1137
8
Germany
156
7
358
11
1352
9
Italy
--
--
214
6
132
1
Japan
115
5
222
7
2426
17
Netherlands
98
4
130
4
354
2
New Zealand
n/a
--
--
--
15
Norway
n/a
--
11
*
8
Sweden
37
2
40
1
86
1
Switzerland
81
3
66
2
340
2
United Kingdom
375
16
233
7
1,217
8
United States
1,101
47
1,686
51
6,475
44
2,3201
100
3,309
1000
14,639
100
1 Based on incomplete information.
2 Numbers may not add due to rounding.
* Negligible.
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
NET ODA FLOWS FROM DAC COUNTRIES TO LDCS,
1961-1981
Legend
NOMINAL
REAL 1970=100
15000 -1
50061 6,L '(0 5 6 1 96c O ti 'S 5 6 B 9 O
19 g 0 Ng6 Ng6 Ng NO 196 1g1 1g'1 1g1 ,~g1 1g1 1g1 101 ,~9-~'I ,~0~1 ,~91 ,egg
YEARS
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Appendix B
OECD Programs to Support Private
Sector Initiatives in LDCs
The OECD countries administer a variety of LDC investment incentive and
promotion programs. These programs can be grouped into five general categories:
o Investment guarantee schemes.
o Fiscal measures - preferential treatment for capital invested in LDCs
through tax deferral and tax credit systems.
o Information and promotion activities- includes partial financing of
pre-investment and feasibility studies.
o Official financial support - export credit programs and government
loans to firms investing in LDCs.
o Public development finance corporations - mobilize foreign capital
for investment projects.
Japan and West Germany, and France have the most pervasive programs among the
OECD members, including low-interest loans to domestic firms from government
financial institutions, equity financing, and the right to accumulate tax-free reserves.
Fourteen OECD countries) have investment insurance programs similar to the US OPIC
program. All of the country programs cover the three main categories of political risk:
inconvertibility, expropriation, and war. In addition, Japan, Switzerland, and the US also
insure against commercial risk. The following sections, based on the OECD's Investing in
Developing Countries, outline the major aspects of individual member programs to
support private investment.
1. Australia, Austria, Belgium, Canada, France, Germany, Japan, Netherlands, New
Zealand, Norway, Spain, Switzerland, and UK.
- B i -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr iJJ Ni 1/ L
Exchange Control
Approval for direct investment abroad conditional upon any return of capital being
remitted to Australia.
Investment Protection Agreements
None.
Investment Guarantee Schemes
Overseas Insurance Investment Scheme (1966) provides investment insurance
against the three main categories of non-commercial risk. Equity participation or
loans are eligible for coverage. The maximum amount of insurance is 200% of the
value of the original investment. A lower premium applies to joint ventures with
local investors with at least 25% equity in the enterprise.
Fiscal Measures
No distinction is made between income from developed and Third World countries.
Relief from double taxation provided by means of a credit against Australian
taxes. Double taxation agreements have been signed with Singapore, Malaysia and
the Philippines.
Public Investment Corporation
Unknown.
Other Official Financial Support
Australian Development Assistance Bureau (1981) uses aid funds to help South
Pacific countries purchase equity in joint ventures with Australian businesses.
Information and Promotion Programs
Unknown.
Other Official Support
Unknown.
- B 2 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WIV1 1L)I N 1 1AL
Exchange Control
Transfer of capital for direct investment abroad will be approved if the investment
will result in establishment and maintainance of commercial relations with Austria.
Investment Protection Agreements
None.
Investment Guarantee Schemes
Oesterreichische Kontrollbank (OKB) administers a scheme which applies to both
industrialized and developing countries, normally covering 90-100% of the initial
new investment in the form of equity participation, loans, and licenses. An
extension of the guarantee may be obtained to cover reinvested earnings.
Fiscal Measures
Profits earned and taxed in other countries are not taxable in Austria. Double
taxation agreements are in force with Brazil, Egypt, Greece, India, Indonesia,
Israel, Pakistan, Mexico, Portugal, Spain, and Turkey. Investors in other countries
must apply to the financial authorities for relief. Investors with more than 25%
equity in foreign firm which sells, installs, or services Austrian products may value
their investments at 90% of their costs for tax purposes.
Public Investment Corporation
Unknown.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
"Start-up assistance" program (1964) administers credits on relatively favorable
terms to investment projects in LDCs, with preference given to joint ventures with
local investors. Similar credits are offered, at higher interest rates, to larger
projects in developed countries as well as LDCs. Austrian development assistance
program provides funds for feasibility and pre-investment studies.
- B 3 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Exchange Control
No authorization necessary to carry out a direct investment.
Investment Protection Agreements
Agreements have been signed with Cameroon, Egypt, Indonesia, Malaysia, Morocco,
Romania, Singapore, South Korea, Tunisia, and Zaire.
Investment Guarantee Schemes
Administered by the Office National du Ducroire. Guarantees against the three
main categories of political risk. Projects must contribute to the economic and
social development of the recipient country and promote Belgium's foreign
economic relations. The investment must also be protected by the laws of the host
country or by a bilateral agreement between Belgium and the other country.
Coverage applies to the initial investment and to reinvested earnings, up to 50% of
the amount of the initial investment.
Fiscal Measures
Some double taxation agreements have been signed by specific countries (India,
Malaysia, Morocco, Singapore, Tunisia, Philippines, Korea, Pakistan, Thailand,
Zaire, Indonesia). In the absence of such agreements, taxes on foreign earnings are
reduced by one-quarter or one-half depending on whether the recipient is a
company or an individual. Dividends from permanent holdings in foreign companies
are tax exempt. Normal taxes are reduced on other forms of foreign investment
income. In tax conventions with LDCs a "tax sparing credit" is available off-
setting against Belgian taxes those temporarily forgone by the LDCs as an
investment incentive.
Public Investment Corporation
Societe Belge d'Investissement International (1971) - participates in the capital
financing of foreign business ventures through equity holdings or long-term loans.
Activities are not restricted to any specific geographic area; however, the SBI is
particularly interested in LDC ventures.
Other Official Financial Support
Fund for Development Cooperation (1983) - finances productive investment in
LDCs, mainly in the manufacturing sector, through participation in national or
regional development banks or in public or semi-public enterprises. Aims to
promote LDC economic and social development. At least 25% of Fund resources
will be devoted to projects in low-income countries. Financial support can take the
form of loans, interest subsidies, or equity participation.
Information and Promotion Programs
None.
- B 4 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr 1LftdN i 1AL
BELGNM
(Continued)
Other Official Support
The General Administration for Development Cooperation provides feasibility
studies, training centers, and technical assistance via contracts with Belgian firms.
- B 5 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Exchange Control
None.
Investment Protection Agreements
Unknown.
Investment Guarantee Schemes
The Export Development Corporation provides guarantees against the three main
political risks for foreign investment in LDCs (equity, loans, tangible assets,
service contracts, royalties, trademarks, leaves). Coverage up to 100% of the
initial investment; an additional 50% of this amount can cover reinvested earnings.
Fiscal Measures
No distinction is made between income from investments in LDCs and those made
in other countries. Tax sparing is granted under the provisions of specific double
taxation conventions with LDCs. Resident corporations are granted credits for
foreign taxes.
Public Investment Corporation
Unknown.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Industrial Cooperation Program (1979) - disseminates information on potential
projects and partnerships.
Other Official Support
Industrial Cooperation Program (1978) - contributes funds to investigations of joint
ventures and other forms of cooperation in the Third World; provides funds for
training, workshops and seminars for LDC counterparts. Provides financial
assistance to perform pre-feasibility studies.
- B 6 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr' 1 DENT I AL
Exchange Control
Transactions for direct investment abroad require a license from the Danish
National Bank, which is usually granted.
Investment Protection Agreements
Agreements have been signed with Malawi, Indonesia, and Romania.
Investment Guarantee Schemes
The Danish International Development Agency (DANIDA) provides coverage for the
three main political risks for new direct investment in LDCs. Investor must have a
certain degree of control over an enterprise to be eligible. Some long-term loans
may also be coverable.
Fiscal Measures
Unknown.
Public Investment Corporation
The Industrialization Fund for Developing Countries (1967) - promotes investments
in LDCs through equity and loan financing, feasibility studies, transfer of know-how
and other services. Concentrates on manufacturing and agri-business, although it
also is involved in tourism and local shipping.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
Unknown.
- B 7 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNr 1L)FNT1AL
Exchange Control
None.
Investment Protection Agreements
By yearend 1981, agreements had been signed with 49 LDCs.
Investment Guarantee Schemes
The official guarantee scheme established in 1960 covers the three main categories
of political risks. Equity, loans, and endowment capital can be guaranteed.
Coverage is limited to 95% of the initial investment and reinvested earnings up to
100% of the covered initial investment.
Fiscal Measures
By yearend 1981, 29 bilateral agreements for the avoidance of double taxation had
been signed with LDCs. Most of these agreements apply the principle of taxation
in the source country; therefore, tax holidays and exemptions are treated as tax
credits deductible from German tax liabilities.
Tax Measures for Foreign Investment of German Industry (1969) - applies to
developed and underdeveloped countries. Allows investor to create profit-reducing
reserves or to deduct losses incurred abroad from domestic profits.
Public Investment Corporation
The German Development Corporation (DEG) aims to encourage medium and small-
scale German entrepreneurs to establish operations in LDCs. It actively seeks new
investment opportunities, makes proposals to German industry, and helps firms
make local contacts.
Other Official Financial Support
A support program set up in 1979 provides loans at highly favorable terms to
promote the establishment of German subsidiaries in LDCs.
Information and Promotion Programs
A number of official and private investment advisory services provide information
on investment opportunities for German industry.
Other Official Support
- B 8 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wivr ii,niv i iALJ
Exchange Control
No authorization is required for foreign investments by enterprises, except by
banks.
Investment Protection Agreements
Agreements have been signed with a number of LDCs, including Ivory Coast,
Gabon, Guinea, Malta, Morocco, Niger, and Tunisia. Trade and cooperation
agreements between Italy and some other LDCs also deal with private investment
interests.
Investment Guarantee Schemes
The Special Section for Export Credit Insurance (SACE) provides guarantees for
direct investment consisting of the provision of capital or capital goods,
technologies, licenses, patents, etc. Maximum coverage is 70% of the initial
investment value.
Fiscal Measures
There are no special fiscal incentives for private investment in LDCs. Dividends
received by a parent company from a foreign subsidiary are subject to a lower tax
rate than profits earned in Italy.
Public Investment Corporation
None.
Other Official Financial Support
None.
Information and Promotion Programs
Unknown.
Other Official Support
Official subsidies are available to partially finance the cost of pre-investment
studies.
- B 9 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WNFIDENTIAL
Exchange Control
Direct foreign investment exceeding Y3 million requires a prior notification to the
Minister of Finance.
Investment Protection Agreements
Agreements have been signed with Egypt and Sri Lanka; Japan has also ratified
treaties of friendship, commerce, and navigation containing clauses on the
protection of private interests with a number of LDCs.
Investment Guarantee Schemes
Overseas Investment Guarantee Scheme (1970) - provides coverage for the three
categories of political risk for direct investment in the form of equity, long-term
loans, real estate, etc. It can also apply to portfolio investment in and long-term
loans to an enterprise engaged in the exploitation of natural resources. In this
case, coverage is extended to credit risk (bankruptcy or default of the borrower for
6 months or more) as well as political risk.
Fiscal Measures
Double taxation agreements and agreements to extend tax credits have been signed
with Brazil, Egypt, India, Indonesia, Korea, Malaysia, Pakistan, Philippines,
Singapore, Spain, Sri Lanka, Thailand and Zambia. A system for tax deferment on
investments in LDCs will apply until 31 March 84.
Public Investment Corporation
Japan Overseas Development Corporation (1970) - a semi-public entity which
promotes industrial development and trade in LDCs. Also provides financing for
joint ventures with local firms.
Other Official Financial Support
ExIm Bank of Japan (1950) - extends medium and long-term export credits to
Japanese firms but also provides long-term funds to Japanese investors. More than
half of the scheme's total operations support investments in LDCs.
Overseas Economic Cooperation Fund (1961) - extends official development loans
to LDC governments. It also supplies long-term soft loans to Japanese firms
engaged in projects which are likely to promote economic development in the host
country.
Japan International Cooperation Agency (1974) - Primarily the executing agency
for technical cooperation, but also provides finance for infrastructure related to
development projects undertaken by Japanese nationals. JICA also facilitates the
financing of "experimental" development projects which require technical
innovation.
- B 10 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl\1 1 LLl? 1 1 L7L
JAPAN
(Continued)
Information and Promotion Programs
Unknown.
Other Official Support
OECF also supplies funds for pre-investment surveys.
The Japanese Government subsidizes various private technical assistance activities
- such as training, management consulting and technical advice - to encourage
direct investment in LDCs.
- B 11 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wlvr iUrIA I iAL
Exchange Control
Outward direct investment is free. Loans to foreign subsidiaries exceeding FL 10
million per year per debtor are subject to prior authorization.
Investment Protection Agreements
Agreements have been signed with Tunisia, Ivory Coast, Cameroon, Senegal,
Indonesia, Sudan, Kenya, Tanzania, Uganda, Malaysia, Morocco, Korea, Yugoslavia,
Egypt, Singapore, Thailand, and Sri Lanka.
Investment Guarantee Schemes
The Netherlands Credit Insurance Company is a private firm which operates the
official reinsurance scheme, which applies only to new direct investments in LDCs
and is subject to satisfactory procedural arrangements for dealing with disputes.
The scheme covers the three main categories of political risk and applies to both
equity and loan investments.
Fiscal Measures
To date ten bilateral tax agreements have been signed with LDCs. In the absence
of bilateral tax conventions, the Dutch tax law does not generally make any
distinction in the treatment of investment income from developing or industrialized
countries. Taxes on dividends, interest and royalties may be credited against the
tax levied in the Netherlands thereon.
Public Investment Corporation
Finance Company for Developing Countries (FMO) - provides complementary
finance in the form of risk capital and extends medium and long-term loans for
local projects. FMO also procures or finances technical assistance and participates
in the share capital of local and regional development banks. FMO has recently
started promoting small-scale enterprise through a new institutional setup in
cooperation with local entities.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other'Official Support
Unknown.
- B 12 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Exchange Control
Transfer of funds for outward direct investment is subject to Reserve Bank
approval. Proposals which lead to increased exports are favored. Funds must
usually be borrowed outside New Zealand.
Investment Protection Agreements
None.
Investment Guarantee Schemes
New Zealand Investment Guarantee Scheme (1973) - provides coverage against the
three main categories of political risk. Guarantees 90% of the initial amount of
investment and accumulated earnings up to the value of 90% of the initial
investment.
Fiscal Measures
Agreements for the avoidance of double taxation have been signed with the
Philippines, Fiji, Singapore, and Malaysia.
Public Investment Corporation
The Development Finance Corporation of New Zealand can also supply commercial
loans and financial assistance to joint ventures, mainly in the South Pacific.
Other Official Financial Support
Pacific Islands Industrial Development Scheme (1976) - provides financial
assistance and incentives for New Zealand companies developing approved
manufacturing, horticulture, and agricultural-based ventures in Pacific Forum
Member countries.
Information and Promotion Programs
Unknown.
Other Official Support
Export Suspensory Loan Scheme - offers loans for 40 percent of amount spent by
exporters on promotional expenditures for market development.
- B 13 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl\r lLL.J 11LIL
Exchange Control
Outward direct investment subject to prior authorization by the Central Bank of
Norway.
Investment Protection Agreements
An agreement has been signed with Indonesia. A trade agreement with Madagascar
also contains a clause for the protection of private investment.
Investment Guarantee Schemes
The Export Credit Guarantee Institute administers a scheme which covers new
investments in the form of equity and loans. The potential investor must obtain
prior approval from the Norwegian Agency for International Development
(NORAD), which advises the Institute as to the potential economic benefit of the
investment for the host country.
Fiscal Measures
Investment income from LDCs does not receive special treatment under Norwegian
tax law. Agreements for the avoidance of double taxation have been signed with
Benin, Brazil, Egypt, India, Israel, Ivory Coast, Kenya, Malaysia, Malta, Morocco,
Netherlands Antilles, Portugal, Singapore, South Korea, Spain, Sri Lanka, Tanzania,
Thailand, Trinidad and Tobago, Tunisia, Turkey and Zambia.
Public Investment Corporation
Unknown.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
NORAD participates in financing of pre-investment studies, in medium and long-
term concessional loans, and in loan investment guarantees. NORAD seeks to
ensure that projects meet the developmental needs of the host country.
- B 14 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
CONFIDENTIAL
Exchange Control
Direct investment abroad must be authorized by the Bank of Sweden. Funds must
be borrowed abroad at an average maturity of not less than 5 years. Investment in
sales companies, investments of less than SKr 1 million, and investments in those
LDCs which are the main recipients of Swedish ODA are exempt from this
requirement.
Investment Protection Agreements
Agreements have been signed with China, Egypt, Malaysia, Pakistan, Sri Lanka, and
Yugoslavia.
Investment Guarantee Schemes
The Swedish Export Credits Guarantee Board administers a scheme primarily
intended to encourage projects which benefit LDCs. Guarantees are only available
for investment in countries which are major recipients of Swedish ODA. Only
direct investments which give the investor substantial control of an enterprise are
eligible.
Fiscal Measures
There are no special tax advantages given to income derived from investment in
LDCs. Agreements for the avoidance of double taxation have been signed with
Argentina, Bangladesh, Brazil, Egypt, India, Kenya, South Korea, Liberia, Malaysia,
Malta, Morocco, Pakistan, Peru, Philippines, Singapore, Sri Lanka, Thailand,
Tunisia, Tanzania and Zambia. Arrangements for the avoidance of double taxation
have been made with Barbados, Botswana, Burundi, Cyprus, Ghana, Jamaica,
Malawi, Mauritius, Nigeria, Rwanda, Seychelles and Sierra Leone. Swedish
companies are normally excempt from domestic tax on dividends from a foreign
subsidiary. Companies can also receive credits for taxes spared under incentives
granted by the host company.
Public Investment Corporation
Swedish Fund for Industrial Cooperation with Developing Countries (1979) -
SWEDFUND acts as a broker between interested parties in Sweden and the LDCs,
partially finances feasibility studies, and contributes with equity participation
and/or loans and guarantees in joint ventures. SWEDFUND promotes projects in
those countries which already have long-standing development cooperation
relationships with Sweden. Projects involving exploitation of natural resources are
not eligible for support unless they include an element of manufacturing.
Other Official Financial Support
- B 15 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wtvr iliriv t 1AL
SWEDEN
(Continued)
Information and Promotion Programs
Unknown.
Other Official Support
Unknown.
- B 16 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
w11I1? I JJL k 1 1 t LJ
Exchange Control
None.
Investment Protection Agreements
Bilateral agreements for the promotion and protection of investments have been
signed with 17 LDCs; agreements on commerce, investment protection and
technical cooperation have been signed with 14 LDCs; and agreements on
commerce and investment protection have been signed with 3 LDCs.
Investment Guarantee Schemes
The Swiss Department of Economics administers a scheme which guarantees
investments in LDCs against the three main categories of political risk. The
guarantee normally applies only to equity participation but can be extended to
foreign loans issued in Switzerland. For loan capital and interest the guarantee can
be extended to cover insolvency or refusal to pay on the part of governments and
other public authorities.
Fiscal Measures
There are no special tax advantages to promote direct investment in LDCs.
Agreements for the avoidance of double taxation have been signed with Pakistan,
Trinidad and Tobago, Malaysia, and Singapore.
Public Investment Corporation
Unknown.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
Unknown.
- B 17 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
WINr iijzn i inu
Exchange Control
None.
Investment Protection Agreements
Agreements have been signed with 19 LDCs.
Investment Guarantee Schemes
The Export Credit Guarantee Department administers a scheme which applies to
new investments in virtually all foreign countries. The scheme provides coverage
for equity and loan investments against the three main categories of political risk.
Coverage is also available for portfolio investments meeting certain criteria.
Fiscal Measures
In general, the UK domestic financial system does not have any measure designed
specifically to favor direct investment in LDCs. However, agreements on the
avoidance of double taxation have been signed with 78 countries. Some of these
agreements contain "tax sparing" provisions.
Public Investment Corporation
Commonwealth Development Corporation (1948) - CDC aims to make at least one-
half of its new commitments in the poorer LDCs and in renewable natural resource
projects. CDC particularly favors joint ventures with local entrepreneurs and local
capital. Except for economic infrastructure the emphasis is on large agricultural
and medium-sized industrial projects. Technical, managerial, and financial
assistance is given to plantations and smallholder schemes.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
ODA funds can be used to finance infrastructure needed to investment projects,
and to provide local development institutions with funds to contribute local capital
to joint ventures involving private investment in partnership with local investors or
public bodies of the host country.
The Overseas Development Administration can provide financial support for pre-
investment studies by private investors in LDCs.
- B 18 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl`I1' 11jr,l`! 1 1 111L
UNITED KINGDOM
(Continued)
Other Official Support (Cont'd)
Under the official technical assistance program, host countries can request the
services of experts in drawing up development plans which may include a role for
foreign private investment.
- B 19 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wl(r iLC.ty I InL
Exchange Control
None.
Investment Protection Agreements
The US has completed bilateral investment protection agreements with 114 LDCs,
which provide procedurally for the operations of OPIC.
A program has recently begun to negotiate a series of bilateral investment treaties
with selected LDCs in order to establish a common frame of reference and legal
basis for private investors. The first BIT was signed with Egypt last year;
negotiations with Panama have been concluded and negotiations with several other
countries are in process. Key elements of this program include: national/MFN
treatment for foreign investment; recognition of international law standards; free
transferability of capital and other payments; and use of international arbitration
procedures for settling disputes.
Investment Guarantee Schemes
Overseas Private Investment Corporation (1971) - conducts financing, insurance
and reinsurance operations, supporting only those projects which contribute to the
economic and social development of the host country and are consistent with US
balance of payments and employment objectives. The Investment Insurance
Program offers coverage against the three main categories of political risk, civil
strife, and several types of commercial risk. Coverage of 90-100% of the initial
investment and up to 180% of retained earnings is offered. OPIC exposure is
limited in any one country or category of risk to 10% of total outstanding
insurance. The Investment Loan Guarantee Program offers lending institutions
100% guarantees for both loan principal and interest against political and
commercial risk.
Fiscal Measures
US investors receive tax credits for taxes paid in a host country on income from a
foreign subsidiary. Income earned in LDCs is not treated more favorably than
income earned elsewhere. Foreign subsidiary profits are not generally subject to
US tax until repatriation.
Public Investment Corporation
OPIC's Direct Investment Fund offers direct loans to small US investors when
private financing is unavailable on appropriate terms. Rates are close to long-term
fixed rates available in commercial money markets.
- B 20 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wl`l t7 1 LL'1\ I IIMU
UNITED STATES
(Continued)
Other Official Financial Support
AID directs industrial financing through loans to private investment funds
established in the host countries, and also to regional development banks.
AID provides loans and technical assistance to small indigenous entrepreneurs in
Africa to expand their enterprises.
AID's Housing Investment Guarantee Program makes available to housing
institutions in LDCs long-term financing from US lenders, in order to stimulate
investment in low-income housing projects.
Information and Promotion Programs
OPIC participates financially in the identification, assessment, survey and
promotion of private investment by small businesses in LDCs.
Partners of the Alliance - establishes links between the business communities in
Latin America and the US.
Other Official Support
OPIC's Business Management Education and Manpower Training Program provides
funding for various technology transfer and training opportunities.
AID's Bureau for Private Enterprise assists host countries in creating a legal,
regulatory, and policy environment conducive to private business investment by
identifying constraints in these areas and recommending changes to alleviate
them. The Bureau leverages relatively small amounts of public funds to attract
greater amounts of private resources. The initial focus of the program will be on
12 selected countries, and it will attempt to identify key opportunities for
development-oriented investment in agri-business, capital mobilization institutions,
non-traditional export business development, and vocational/management training.
International Executive Service Corps - provides short-term management
assistance to LDC enterprises.
- B 21 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Wl`I i' IL1i141 1AL
Exchange Control
Direct investment abroad requires authorization from the Bank of Finland. The
investment should promote exports or have other favorable balance of payments
impact.
Investment Protection Agreements
An agreement has been signed with Egypt.
Investment Guarantee Schemes
The Export Guarantee Board administers a scheme which guarantees investments
(equity, loans, or loan guarantees) againt the three main categories of political
risk. The investor must demonstrate that his project will provide economic
benefits to both Finland and the host country.
Fiscal Measures
Unless a double taxation agreement applies, foreign national income taxes may be
credited against Finnish income tax on the foreign source income. Agreements for
the avoidance of double taxation have been signed with Brazil, India, Israel, Korea,
Morocco, the Philippines, Singapore, Tanzania, Zambia, and Egypt. These
agreements are generally more favorable than those between Finland and
industrialized countries.
Public Investment Corporation
Finnish Fund for Industrial Development Cooperation (1979) - The terms of
FINNFUND investments qualify them as Official Development Assistance. The
Fund promotes the initiation, establishment and expansion of joint ventures in
LDCs, in cooperation with Finnish and local entrepreneurs. The Fund assists in
particular medium- and small-scale enterprises.
Other Official Financial Support
Unknown.
Information and Promotion Programs
Unknown.
Other Official Support
FINNFUND also participates in financing costs of project preparation work and
feasibility studies.
- B 22 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wivr 1 i,rly 1 i rtL
Exchange Control
Investments may be undertaken in Franc Area Countries without authorization.
Direct investment transfers to the EEC require prior notification to the Ministry of
Economics. Direct investment transfers to other countries exceeding FF 1 million
per year require authorization and have to be financed from foreign sources.
Investment Protection Agreements
Agreements have been signed with Senegal, Madagascar, CAR, Congo, Chad,
Gabon, Togo, Mali, Tunisia, Zaire, Mauritius, Indonesia, Haiti, Yugoslavia, Egypt,
South Korea, Malaysia, Morocco, Singapore, Philippines, Malta, Romania, Jordan,
Syria, Sudan, Paraguay, Liberia, and Sri Lanka.
Investment Guarantee Schemes
The Banque Francaise de Commerce Exterieur (BFCE) manages a general scheme
designed to encourage the growth of French industrial establishments, services, and
know-how abroad. Guarantees may be given to investments in almost all sectors.
The Compagnie Francaise d'Assurance pour le Commerce Exterieur (COFACE)
encourages investments which will bring about a significant increase in exports of
French goods or services. Provisions of this scheme are more advantageous than
BFCE's, but investors must commit themselves to an export program, and there is a
penalty for non-compliance. Only new investments (i.e., those not yet completed
when the application is made) can qualify for these schemes.
Fiscal Measures
Tax incentives for investment in LDCs fall into five groups:
1. Applies to countries with which there are no tax conventions. Application of
French tax laws, and the rules of territoriality in particular, differs for firms and
individuals.
2. Applies to Guinea, Vietnam, Cambodia, and Laos. A system of "fiscal
neutrality" allows tax on distributed profits collected in the host countries to be
deducted from French tax payable on dividends arising in those countries.
3. Applies to the French Overseas Territories, the Black African States and
Madagascar, Algeria and Tunisia. These countries have signed bilateral tax
conventions with France to avoid double taxation. These agreements confer a yield
on capital invested in securities in those countries that is higher than would be
obtained in countries not linked to France by a tax convention.
- B 23 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
wINr i.Jriv i 1 ttL
FRANCE
(Continued)
Fiscal Measures (Cont'd)
4. Conventions of a special type have been established with India, Lebanon,
Pakistan, Brazil, Iran, Singapore, Malaysia and the Philippines. As a general rule,
these conventions avoid double taxation for French investors and enable them to
retain the tax benefits which the states in this group allow to foreign investors
through matching credits and "tax sparing".
5. Special tax arrangements encourage private investment in the French Overseas
Departments.
Public Investment Corporation
The Caisse Centrale de Cooperation Economique (CCCE) provides direct support of
private investment mainly in the form of medium-term rediscount credits and long-
term loans. CCCE takes holdings in the capital of LDC development banks and
makes loans to them.
Other Official Financial Support
The Fonds d'Aide et de Cooperation (FAC) makes grants to public or semi-public
bodies to enable them to take equity holdings in the capital of companies
contributing to the development of the African and Malagasy States. Loans are
also made to partially finance pre-investment studies and training programs.
Union Pour le Financement et l'Expansion du Commerce International (UFINEX) -
grants credits for up to 15 years to investment operations that will generate a
volume of French exports three to four times greater than the initial investment
within a five-year period. Approximately 25% of its loans are for investments in
LDCs.
Developpement Industriel a l'Etranger (DIE) - extends loans to finance industrial
and commercial investment abroad. Approximately one-half of its operations
concern LDCs.
Information and Promotion Programs
The FAC can bear up to 50% of the cost of investment promotion measures, market
research, feasibility studies, and engineering surveys in the African and Malagasy
States.
Other Official Support
- B 24 -
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
Appendix C
Soviet Participation in LDC Private Sector Activities)
Moscow's ventures in LDCs reflect longstanding Soviet policies that emphasize
developing influences by expanding economic relationships. Moscow has used the joint
venture device in LDCs only in the field of fishing, where LDC governments have
demanded equity in return for use of their resources. An analysis of Soviet joint venture
contracts with LDCs shows that most have been capitalized at under $1 million each. In
contrast to its normal practice in industrial countries, Moscow has accepted 49 percent
minority holdings in LDC ventures but retains operational control through contribution of
most of the assets.
Of the 30 Soviet companies formed in the Third World since the mid-1960s, more
than half have been joint fishing ventures. The USSR provides boats, equipment,
expertise, and training in return for the privilege of fishing within the partner country's
territorial waters. A 1977 fishing agreement with Angola is representative of most
Soviet joint venture fishing agreements with LDCs. It calls for the USSR to provide
surveys of Angolan fishing areas, 30,000 tons of fish annually, 10 fishing boats, onshore
processing areas, 30 scholarships for Angolans, 100 ship-to-shore radios, and 50
Sovietspecialists to advise Angola's fishing industry-particularly in fleet maintenance,
product distribution and marketing, and planning and establishinging cooperatives. 25X1
Aside from its 17 joint venture fishing arrangements in LDCs, the USSR has also
opened:
o Transport companies with Afghanistan, Iran, and Singapore
- C 1 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
 Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3
o Trading and marketing companies in Cameroon, Ethiopia, Morocco, Nigeria,
Mexico, and elsewhere.
o Branches of Moscow Narodny Bank in Singapore and Lebanon.
o Freight companies in Iran and Singapore.
- C 2 -
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/01/19: CIA-RDP85B00652R000100050016-3