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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 300  March 22, 2021
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])
*Engaging diaspora direct investors: The four elements of successful policy
regimes*
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* <#m_5325168850398187605__edn1>
by
Daniel Naujoks ** <#m_5325168850398187605__edn2>

Many migrants and diaspora actors engage in cross-border investment in
firms in their country of (ancestral) origin.[1]
<#m_5325168850398187605__edn3> Although such diaspora investments can be
critical sources of capital, technology and know-how,[2]
<#m_5325168850398187605__edn4> FDI policy regimes have focused too little
on these flows, and policies often rely on mere anecdotes.

Studies suggest that diaspora investment creates more local employment, is
more stable and has more significant spillover effects than other FDI.[3]
<#m_5325168850398187605__edn5> While recent studies have not confirmed
these impacts,[4] <#m_5325168850398187605__edn6> diaspora investments are
on average smaller than non-diaspora FDI, and often reach regions that are
less attractive to other foreign investors.[5]
<#m_5325168850398187605__edn7>

Diaspora investments may also be “low hanging fruits” in home countries’
investment-promotion efforts that, with the right incentives and policy
framework, add to the existing pool of foreign capital. As many governments
seek investment from emigrant populations, the UN Global Compact for
Migration
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encourages countries to develop targeted support programs facilitating
diaspora investment.

60% of countries have at least one policy specifically to attract diaspora
investors.[6] <#m_5325168850398187605__edn8> Half streamline bureaucratic
procedures or allow transferability of financial assets. 42% provide tax
exemptions or other financial incentives, and one-third have established
preferential allotments of permits and licenses. One in four countries
provides diaspora investors preferential access to credit. These practices
are particularly prevalent in Latin America, where 4 out of 5 countries
have adopted such schemes, followed by more than two-thirds of governments
in Asia, Africa and Oceania. Only Europe trails behind, with fewer than
one-third of countries adopting such measures.

The key to successful diaspora investment-promotion policies is fourfold:

   - Public policies aimed at encouraging diaspora FDI are regularly based
   on anecdotes and assumptions. It is paramount to obtain data on the
   composition, potential and preferences of diaspora investors. Ethiopia,
   India, Senegal, and Tunisia are among the few countries that track diaspora
   investment. However, even in these countries, records are mostly limited to
   financial transactions that are declared as diaspora investments or take
   advantage of certain government benefits. In addition, instead of measuring
   actual investments, data are generally based on proposed and approved
   investment licenses. To further complicate measurement, in addition to
   diaspora actors investing their own funds, migrants managing foreign
   enterprises can induce their firms’ investments in their country of origin.
   Diaspora actors thus may be intermediaries for non-diaspora FDI.
   Importantly, diaspora investors should be treated as regular investors.
   Naïve assumptions of diaspora investors being predominantly motivated to
   “give back” lead to policy design flaws.
   - Policy frameworks should use a mix of measures. These include
   traditional investment incentive tools, such as covering certain costs,
   exempting investments from specific taxes, securing transactions,
   streamlining bureaucratic procedures, and creating virtual or in-person
   business-to-business platforms. Promotion activities should also showcase
   previous examples of diaspora investments to potential future investors. It
   may often be more effective to establish benefits and procedures for *all
   foreign investors*, while specifically targeting diaspora investors in
   outreach and dissemination strategies.
   - Policies must be scaled to have an impact—and impacts must be
   monitored. Certain policies’ lack of scale is often based on a combination
   of insufficient analysis that underpins such measures, and insufficient
   promotion of rights, processes and investment opportunities to actual and
   potential investors. It is essential to stop judging policies by their
   intention; instead, their impact on the volume, composition and effect of
   inward diaspora investments must be rigorously assessed.
   - To implement the above-mentioned recommendations, it may be advisable
   to create institutions specifically targeting diaspora investors. Often, it
   will make sense to integrate these within general investment promotion
   agencies. In some cases, they may be created within diaspora ministries or
   as stand-alone entities. These institutions can map diaspora populations
   and their capability and willingness to invest in their home countries,
   create meaningful communication platforms and design, and implement and
   monitor policies, including geotargeting of diaspora communities who settle
   in specific geographic areas.

Diaspora FDI is not a “cure-all” for capital-starved economies. And there
is no reason to believe that its impacts would be uniform across economic
and social contexts. However, the right mix of policies and programs can
facilitate additional flows of capital, technology and know-how—and thus
lead to significant development benefits.

------------------------------
* <#m_5325168850398187605__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
series.*
** <#m_5325168850398187605__ednref2> Daniel Naujoks (
[log in to unmask]) is Director a.i. of the International
Organization and UN Studies Specialization at Columbia University’s School
of International and Public Affairs. The author wishes to thank Liesl
Riddle, Benjamin Graham and Riad Meddeb for in-depth discussions on
diaspora investment policies, Vinod Mishra at the UN Population Division
for sharing diaspora policy data and José de la Torre, Stephen Kobrin and
Douglas van den Berghe for their insightful peer reviews and comments.
[1] <#m_5325168850398187605__ednref3> Diasporic actors are persons who
originate from a country, self-identify with that country and maintain
meaningful cultural and social relationships with the country. However,
policy definitions often rely merely on ancestry.
[2] <#m_5325168850398187605__ednref4> Diaspora actors may also engage in
portfolio investment, investing in capital accounts, diaspora sovereign
bonds, and real estate. Migrant remittances can be linked to diaspora FDI
but are a different form of monetary transfer.
[3] <#m_5325168850398187605__ednref5> Liesl Riddle and Tjai M.Nielsen,
“Policies to strengthen diaspora investment and entrepreneurship:
Cross-national perspectives,” in Krishnan Sharma et al., eds., *Realizing
the Development Potential of Diasporas *(Tokyo: UN University Press, 2011),
pp. 23–51.
[4] <#m_5325168850398187605__ednref6> Benjamin A.T. Graham, *Investing in
the Homeland: Migration, Social Ties, and Foreign Firms* (Ann Arbor:
University of Michigan Press, 2019).
[5] <#m_5325168850398187605__ednref7> Daniel Naujoks, “Paradigms, Policies
and Patterns of Indian Diaspora Investments”, in Radha S. Hegde and Ajaya
K. Sahoo, eds., *Routledge Handbook of the Indian Diaspora* (Milton Park:
Routledge, 2018), pp. 90-103.
[6] <#m_5325168850398187605__ednref8> Or 59 out of 99 countries with data, UN,
*World Population Policies 2019: International Migration Policies* (New
York: UN, 2019).
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*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Daniel Naujoks, ‘Engaging diaspora direct
investors: The four elements of successful policy regimes,’ Columbia FDI
Perspectives No. 300, March 22, 2021.” Reprinted with permission from the
Columbia Center on Sustainable Investment (**www.ccsi.columbia.edu*
<https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=b784ebfd7e&e=763bcf158c>*).”
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Riccardo Loschi, [log in to unmask]

*Most recent Columbia FDI Perspectives*
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   - No. 299, Axel Berger and Manjiao Chi, ‘The EU-China Comprehensive
   Agreement on Investment: Stuck half-way?,’ Columbia FDI Perspectives, March
   8, 2021
   - No. 298, Karl P. Sauvant and Louis T. Wells, ‘Obsolescence of the
   obsolescing bargain: Why governments must get investor-state contracts
   right,’ Columbia FDI Perspectives, February 22, 2021
   - No. 297, Maria Borga and Monika Sztajerowska, ‘Divestments by MNEs:
   What do we know about why they happen?,’ Columbia FDI Perspectives,
   February 8, 2021

*All previous FDI Perspectives are available at *
*http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/*
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*Other relevant CCSI news and announcements*

   - *New volume published!* The Yearbook on International Investment Law
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   (edited by CCSI's Lisa Sachs, Lise Johnson, and Jesse Coleman) monitors
   current developments in international investment law and policy. Part One
   focuses on trends in foreign direct investment, international investment
   agreements and investment disputes, and Part Two looks at central issues in
   the contemporary discussions on international investment law and
policy. This
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for
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Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*


*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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"Multinational Enterprises and the Global Investment Regime: Toward
Balancing Rights and Responsibilities”, “The *WIR* at 30: Contributions to
National and International Policymaking", "An Inventory of Concrete
Measures to Facilitate the Flow of Sustainable FDI: What? Why? How?", "Note
on the Costs and Financing of an Advisory Centre on International
Investment Law", "Insulating a WTO Investment Facilitation Framework from
ISDS", "Advancing Sustainable Development by Facilitating Sustainable FDI,
Promoting CSR, Designating Recognized Sustainable Investors, and Giving
Home Countries a Role", "Making FDI more Sustainable", "The Case for an
Advisory Centre on International Investment Law", "The Potential
Value-added of a Multilateral Framework on Investment Facilitation for
Development", "International Investment Facilitation: By Whom and for
What?" are available at https://ssrn.com/author=2461782 .

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