The Lion King Magazine | July - September 2016 - page 8

A country as an economic unit has two major sets of cash flows: receipts and payments. Depending on the political as
well as economic climate within a country at a particular point in time, the country can attract foreign capital flows
in two forms: Foreign Direct Investments (FDIs) or Foreign Portfolio Investments (FPIs).
BUSINESS
| FDIS AND FPIS DEMYSTIFIED
8 •
The Lion King
• July - September 2016
DIRECT AND PORTFOLIO
INVESTMENTS DEMYSTIFIED
BY OLAWALE HAMED
F
oreign Direct Investment is an
investment in a business by an
investor from another country for
which the foreign investor has con-
trol over the company purchased.
The Organization of Economic
Cooperation and Development
(OECD) defines control as owning 10%
or more of the business. Foreign Direct
investment is usually long term in nature
as invested funds could remain within
the recipient country for several years.
Foreign Portfolio Investment involves
inflowing funds into another country
for purchase of securities and other
financial assets usually with a one year
duration which could continue in fur-
ther one year cycles. It does not pro-
vide the investor with direct ownership
in the business as may be the case for
FDI. FPI funds are usually considered
more volatile when compared with
FDI funds due to the initial duration of
investment and the expected returns.
Before choosing to invest in a country,
foreign investors consider a plethora
of factors bordering on political stabil-
ity, infrastructure, fiscal and monetary
policy, security of lives and property,
soundness and depth of the finan-
cial system as well as percentage of
returns on investment.
Foreign Capital Investments benefit a
developing country like Nigeria, not
only by supporting the domestic cur-
rency, but these flows also help in job
creation, boost market liquidity and
enhance overall economic growth.
With its size and presence in Europe
and New York, coupled with Trade
and Treasury expertise, UBA is well
positioned as a conduit through which
these funds can be channelled into
Nigeria on behalf of our clients. Further
information regarding the workability
of foreign capital flow receipts, con-
version, externalisation and repatria-
tion can be obtained from the Bank’s
Global Investor Services or Group
Treasury.
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