Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
72
FDI and other inflows to these countries remain relatively weak, in part because reform
remains at an early stage, including reform of large state-owned enterprises. Algeria – which
has a large land mass, a rich natural resource base and relative political stability – has
significant untapped potential, despite high energy prices. There is scope for development in
the state’s financial markets, regulatory environment, and institutional frameworks.
Other nations are succeeding in attracting significant private capital flows – including Turkey
(US$95bn in 2013), Kazakhstan (US$52bn) and Malaysia (US$29bn),73 yet each of the
countries in the upper-middle income group faces country-specific challenges, some of which
are outlined below.
General barriers
 Rule of law, transparency and uncertainty. Investors consistently cite uncertainty
around the repatriation of profits as a major barrier to investment.74 In some UMICs,
the tendency of governments to interfere in the economy in efforts to protect domestic
interests creates further uncertainty among foreign investors. In Kazakhstan, for
example, fears of government involvement in oil and gas contracts present a
significant obstacle to promoting further investment in the sector.
 Unattractive taxation regimes. Governments in UMICs such as Kazakhstan have
attempted to increase taxes in certain sectors, including the energy sector, in order to
support the country’s economic diversification efforts. While powerful multinationals
may hold some sway over local governments in such situations, foreign investors with
fewer resources may face uncertainty and instability. 75 This may attract corrupt
practices and regulatory capture.76
 Low levels of business integration. Some countries fail to capitalise on economic
reforms that they push through owing to a lack of technical expertise and technological
capacity. In Tunisia, efforts to bolster FDI by attracting multinational companies to
assemble export goods in the country have floundered because a lack of technological
know-how has left MENA-based companies with poor links to global supply chains.
Barriers relating to financial stability and institutional capacity
 Restrictions on foreign ownership. A number of countries in this income group
routinely impose restrictions on foreign ownership, which can differ by sector. In
Kazakhstan, the National Security Law states that foreign investors may not hold more
than 49% of a long-distance or international communications operator that owns land
73 EIU country data, 2013
74 Interview with official from Global Competitiveness, World Economic Forum, September 10th 2013
75 “Doing business in Kazakhstan: reach, relevance and reliability”, Deloitte, 2013.
76 Regulatory capture describes the situation when regulated industries are able to influence their
regulator so that regulation that ostensibly serves the public interest actually supports the interest of
the industry concerned