Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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individual countries. These relate to certain reforms and policies at the country level or to
wider characteristics of the country.
General opportunities
 Mega-projects send positive signals to investors. The existence of natural resources
in countries such as Mozambique, Chad and Niger allow for the development of mega-
projects, as is the case in Mozambique. These are often large, foreign-owned, capital-
intensive and export-oriented projects that attract investment, sending a signal to
investors that the country is a safe destination for investors and is able to manage
investment projects competently.
 Reducing dependence on concessional financing boosts investor confidence.
Cutting dependence on financial support from IFIs such as the IMF and receiving policy
support only (in the form of the IMF’s Policy Support Instrument, for example) signals
to markets and lenders the Fund’s confidence in a country’s policymaking. This
opportunity is available to several countries in the low-income group.
 Diaspora are often sizable and offer potential for raising funds. Many developing
countries have a large, well-educated diaspora that represents a promising source of
investment in the recipient (home) country. Governments have been keen to leverage
funds from their diaspora in the past but success has been fairly limited to date.
Opportunities relating to financial stability and institutional capacity
 Advantageous fiscal regimes. Tax-efficient regimes have a strong potential to boost
capital flows. For example in Bangladesh, tax on interest from bonds and deposits is
10% , and on dividend income it is zero – such conditions are conducive to a deepening
of the country’s capital markets. In Mozambique, a highly advantageous fiscal regime
for investment licence holders has been established, allowing them to bypass the
country’s corporate tax regime.
 National treatment. Specific investment-related regulations, properly implemented,
have the potential to help build robust credentials for investor protection. These
regulations include providing equal treatment to foreign investors, guarantees on
issues such as expropriation, dispute settlement and profit repatriation – as has been
the case with the adoption of the Law on Investment in Mozambique.
 Potential for international bond issuance. Several developing countries have issued
bonds on international markets or are in the process of doing so. The rapid scaling up
of bond flows, particularly in Africa, over the last three years suggests that bond flows
are likely to be an important source of external finance for emerging African
economies that are graduating out of poorest economy status. Bonds are also popular