# Indicator #1: Receiving investment inflows

Restrictions on receiving investment inflows are measured for two types of transactions: inflows of foreign equity capital, and inflows of long-term foreign loans. These capital transactions are the types of long-term capital flows considered the most stable and beneficial to growth from a macroeconomic perspective, and most economies allow these transfers to be made freely (72% for equity inflows<sup>xi</sup> and 61% for foreign loans, spanning all regions and income groups). Some of these economies do require notification of the inflow or registration of the capital with the government for statistical purposes, but do not impose any requirements that could hinder the transaction.

An additional 14% of economies impose administrative requirements on these inflows, such as requiring that the inflow be registered with the central bank in order for subsequent interest and principal repayments to be allowed. Such requirements may not substantively limit the investment inflows, but could be simplified for example to a notification requirement if Common restrictions on the goal is to maintain statistical information about the stock Receiving investment inflows of foreign capital in the economy.

- Approval required to receive a foreign loan (in 21% of economies)

However, about 25% of economies measured by CTC impose • Official government documentation some moderate or heavy restriction on these investment required to receive an equity inflow (in inflows, such as approval requirements or interest rate ceilings 9% of economies) on foreign loans (see text box). One motivation for such • Interest rate, term, or usage limitations restrictions may be to ensure that inflows of foreign debt are on long-term foreign loans (in 8% of for investment and not speculative purposes, such as via an economies) approval requirement for a firm to receive a foreign loan. But given the general interest across economies of attracting FDI, minimizing the administrative burden of such restrictions may be ideal. Again, approvals could be replaced by notification requirements if the goal is simply to monitor the stock of foreign debt in the economy.

Another approach may be to have a rules-based mechanism whereby loans that conform to certain terms are automatically approved or allowed, as is the case in India and South Africa. This is different than for example in Vietnam and the Philippines, where no such legal mechanism is in place, and the process of receiving the required approval takes around a month. Approval requirements may exist in some economies due to authorities’ lack of experience with risk-based mechanisms, reflecting an opportunity for regulatory reform support.

|Approvals rela<br>take more th|ted to foreign loans<br>an three weeks in:|
|---|---|
|Angola|Philippines|
|Bangladesh|Sri Lanka|
|Cameroon|Tunisia|
|Chad|Venezuela, RB|
|Madagascar|Vietnam|
|Nepal||

Decreasing the time required to comply with restrictions is another way to minimize their burden on firms. CTC finds that in half of the 21% of economies where approval or authorization to receive a foreign loan is needed, the process takes three weeks or less; but in 11% of economies more than three weeks, or even several months, is normally required to receive the requisite approval. Governments of economies that require firms to receive official government documentation (such as investment approval documentation or tax certification) before transferring in capital may also consider whether such restrictions may unduly delay firms’ cross-border transactions.

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