Why Exchange Control Matters in Countries Hosting Foreign Direct Investment?

Posted: 3 Nov 2015

See all articles by Professor Alain Ndedi

Professor Alain Ndedi

ISTG-AC; International Council for Family Business; YENEPAD; Saint Monica University; University of Johannesburg; University of Pretoria; Charisma University

Professor Kelly Kingsly

Independent; Regional Advisory Commision on Financial Markets; Harvard University, Harvard Kennedy School (HKS), Students; Copperstone University ; Charisma university; University of Yaounde II ; Harvard kennedy school

Yota Kuete

Saint Monica University

Henry Jong Ketuma

Saint Monica University

Michael Kouwos

Independent

Date Written: November 1, 2015

Abstract

One of the measurements of economic development in a country is the increase in the nation’s level of capital stock. A developing nation may increase the amount of capital stock by incentivizing and encouraging capital inflows, and this is done more commonly through the attraction of foreign direct investments, or FDIs. FDIs are favoured in particular because of their long term durability and commitment to a host countries economy and would be less susceptible to short term changes in market conditions, therefore ensuring a certain level of continuity and stability in the money flow. (Ndedi and Ijeoma, 2008) However, FDI could be impediments to the desired objectives.

In order to assess these impediments, a review of a literature on drawbacks and disadvantages of FDI was undertaken. The findings of this review show that one key impediment of foreign investment consists of allowing foreign companies to transfer most of their profits to their mother countries, which means allowing them absorb the riches that have been newly created in the host country. Here the establishment of foreign exchange controls is needed. In fact, foreign exchange controls are forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents. Common foreign exchange controls include among others, restricting currency exchange to government-approved exchangers and restrictions on the amount of currency that may be imported or exported. (Ndedi, 2001).

In order to deal with FDI outflow from the host country, Ren (2014) suggests that special measures like the control of foreign exchange accounts, the control of exchange settlement and conversion, the banks’ obligations of review and registration, and the investigation and sanction need to be implemented. According to her, with this regime of foreign exchange control, China has enhanced foreign exchange liquidity as well as facilitates and speeds up foreign direct investment progress. The paper recommends that companies engaged in FDI must re-invest a certain amount of their profits in the host country; amount that could be discussed with local authorities.

Keywords: Exchange control, Ndedi Alain, FDI

Suggested Citation

Ndedi, Alain Aime and Ndedi, Alain Aime and Kingsly, Professor kelly and Kingsly, Professor kelly and Kingsly, Professor kelly and Kuete, Yota and Ketuma, Henry Jong and Kouwos, Michael, Why Exchange Control Matters in Countries Hosting Foreign Direct Investment? (November 1, 2015). Available at SSRN: https://ssrn.com/abstract=2684746

Alain Aime Ndedi (Contact Author)

International Council for Family Business ( email )

San Diego
United States

ISTG-AC ( email )

Douala
Cameroon
Douala, WY Littoral 2012

YENEPAD

PO Box 30069
Suunyside
Pretoria, Pretoria 0135
South Africa
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Saint Monica University ( email )

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Cameroon
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HOME PAGE: http://www.stmonicauniversity.com

University of Johannesburg ( email )

UJ ADMINISTRATION. University of Johannesburg
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Johannesburg, Gauteng
South Africa

HOME PAGE: http://www.uj.ac.za

University of Pretoria ( email )

University of Pretoria,
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Pretoria, Gauteng
South Africa

HOME PAGE: http://www.up.ac.za

Charisma University ( email )

30 Sandcastle Rd
Neptune CT, Grace Bay
Providenciales
Turks and Caicos Islands

Professor kelly Kingsly

Harvard University, Harvard Kennedy School (HKS), Students ( email )

79 JFK-Street Cambridge
Cambridge, MA Massachusetts 02163
United States
00237679866019 (Phone)

Independent ( email )

Regional Advisory Commision on Financial Markets ( email )

COSUMAF
libreville
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Gabon
222225470 (Fax)

HOME PAGE: http://www.kellykingsly.org

Copperstone University ( email )

Kitwe
Zambia

Charisma university

30 Sandcastle Rd
Neptune CT, Grace Bay
Providenciales
Turks and Caicos Islands

University of Yaounde II ( email )

Soa, Yaounde
Yaounde, Cameroon, Center 237
Cameroon

HOME PAGE: http://www.kellykingsly.com,https://www.univ-yaounde2.org/

Harvard kennedy school ( email )

111 Western Avenue 10 soldiers Field park apartmen
Boston, MA 02163
United States
8577075262 (Phone)
8577075262 (Fax)

Yota Kuete

Saint Monica University ( email )

Saint Monica University
Kumba Road
Buea, South West
Cameroon

Henry Jong Ketuma

Saint Monica University ( email )

P.O. BOX 132
Kumba
Buea, South West
Cameroon

Michael Kouwos

Independent ( email )

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