Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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operations, as investors who lack political connections, local partners or the financial
resources to hire economic and legal advisors may be discouraged from investing.
Policies to promote investment by improving the image of the recipient country can also be
effective in informing investors who may have inaccurate perceptions of the country,
particularly if it is located in close proximity to economies that are politically unstable.
4.2. THE ROLE OF COUNTRY ENDOWMENT AND INVESTORMOTIVATION
Having in place a favourable policy framework is not the only key to attracting capital flows,
however. The fundamental endowment of a country can also heavily influence investors. These
characteristics include:
 Demographics, such as a large, growing and young population – Indonesia and Turkey
are two examples of countries with favourable demographics
 Natural resource endowment – Nigeria, Kazakhstan, Indonesia, most of the oil-
exporting (GCC) states, and much of SSA contain plentiful mineral reserves; and
 Proximity to large markets – Four billion people live within an eight-hour flight range
of the UAE, for example
Literature commonly refers to foreign investors having three main motivations. While these
are often associated with FDI, they are also highly relevant to other forms of investment, such
as portfolio investment. The three motivations are as follows:
 Market-seeking – the investor may aim to sell goods or services in the recipient
country and may be motivated by the size and location of the economy
 Resource-seeking – the investor may be driven by the opportunity to exploit natural
resources or other strategic assets in the recipient country; and
 Efficiency-seeking – the investor may be drawn to the recipient country by the
opportunity to exploit labour or infrastructure to achieve cost savings.
The likely motivations of foreign investors may have a bearing on individual countries’ choices
of measures to enhance capital flows. For example, if the motivation to invest is resource-
seeking, as it may be in the case of FDI, the foreign investor may have little choice in terms of
selecting a location with solid regulation or political stability. In such cases, natural resources
may attract investors even in the absence of an attractive policy environment, although it is
clear that countries rich in natural resources that have a favourable business environment will
still prevail over those countries which do not have such measures in place.
In the case of efficiency-seeking motivations, the host country faces even more competition
and more pressure to ensure it has appropriate political and economic frameworks in place.