Washington. The vast majority of countries are missing out on lucrative investment opportunities by limiting foreign companies’ access to their domestic markets, the World Bank said on Wednesday.
Nearly 90 per cent of the 87 countries surveyed have laws that bar foreign companies from some sectors of their economies, the World Bank found in its first-ever “Investing Across Borders” report.
East Asian nations like China and Indonesia are among the most restrictive, while Eastern Europe and Central Asia have some of the most open economies.
Pierre Guislan, one of the report’s main authors, argued there was a clear correlation between a country’s openness and the level of foreign investment. Yet politics - security concerns or protectionist elements - typically force governments to adopt restrictions.
“From an economic point of view, it’s pretty hard to argue that keeping out certain investors is going to benefit the country,” Guislan said. But “political connotations” meant there was often a “willingness to deal with the trade-off of potentially attracting less investment.”
The report also found that smaller countries tended to be more open to investors from abroad. Larger markets like China “can afford to be less open yet attract significant foreign direct investment,” Guislan said.
Some other findings: It takes about 50 per cent longer on average for foreign investors to start a business than domestic groups; and about 20 per cent of countries require foreign investors to get government approval before launching their company or subsidiary.
While this was the first report of its kind, Guislan said there was “anecdotal evidence” that countries have relaxed regulations over time.
Many countries were also looking to free up restrictions in light of the 2008 financial crisis, which sparked a sharp reduction in foreign investment.
With the global economy now recovering, “a number of countries are trying to position themselves better for what will be the next uptick” in investment, Guislan said.