Most developing countries encounter numerous economic problems, the most salient of which are The deterioration in development

rates related, to a great extent, to low income levels thus exerting a passive impact on savings and consequently on investments rates. The lack of essential financing potentials aggravates the problem of enhancing investment and exportation. At this point, these countries began to search for alternative sources of finance:

Most countries turn to that option to bridge the gab of financing, however, these countries are faced with the so-called crises of external indebtedness, especially as this problem aggravates in the form of interest and installments. Creditor countries, hence, became the key beneficiary from the fruits of development rather than developing countries itself, the matter that adversely affect the economic development of the said countries.

Among the different forms of capital flows, academics and policymakers, talk about foreign direct investment (FDI) the most. This is because of several benefits of FDI and its importance in the world economy vis--vis other forms of capital flows. In the past twenty years, FDI has been the dominant form of capital flow in the global economy, even for developing countries.

Here we have three terms : Investment: is the commitment or involvement of a certain amount of money in commercial transactions for the achievement of profits within a certain period time. Direct: is the straight full or partial participation in the management and control of these commercial transactions. Foreign: Means that these commercial transactions are performed in a foreign territory.

It is worth mentioning that investment decision depends on two main points: First: The motives of the donor country for investment and the competitive edge of relevant projects besides the need to find access for new markets. Second: The points of attraction for investing in hosting countries are embodied in economic development, market size, administrative, economic and political stability, hard and soft infrastructure, transparency, and finally legislations and laws concerning investment and the incentives embodied in the same.

FDI is seen as an important source of capital inflow. Transfer of technologies is expected because foreign companies will use technology from their home country. It is argued that FDI will lead to employment creation. Transfer of management skills, to local managers, takes place when investors set up new plants, acquire companies or outsource to local subcontractors

FDI can take the form of either Greenfield investment (also called "mortar and brick" investment) or merger and acquisition (M&A)

It depends on whether the investment involves mainly newly created assets or just a transfer from local to foreign firms.

UNCTAD World Investment Report

revealed that, for the host country, the benefits of M&As are lower and the risks of negative effects are greater when compared to Greenfield investments. FDI through M&As correspond to a smaller productive investment than Greenfield as the financial resources do not necessarily go into increasing the capital stock. FDI through M&As is less likely to transfer new or better technologies than Greenfield investment. FDI through M&As do not generate employment at the time of entry into the host economy, and may lead to lay-offs as the acquired firm is restructured. FDI through M&As can reduce or eliminate competition .

The direct barriers to FDI First, guise colonialism Although the colonial period ended long time ago, it has also remained a central factor in Africas skepticism over joining the global economy, reflecting a common sentiment even today.

This was closely complemented by dependency theory, which argued that capitalism in general, and foreign companies in particular, were agents of underdevelopment and merely continuing colonialism in another guise.

Second, perhaps just an importantly, most of Africas anticolonial movements were heavily supported by the Soviet Union and its allies. This encouraged the popularity of socialism and an ideological bias against foreign (or, more specifically, Western) capital. Many of the current decision-makers (including those frequently hailed as reformers) have held political positions for decades and were trained on the socialist model steeped in anti-foreign investment ideology.

Third , economic nationalism Ideas of economic nationalism affected sentiment towards foreign investment, and they continue to influence policy today. Fourth, On a more practical level, political elites also did not want to be constrained by foreigners who might control key strategic sectors of the economy or their access to foreign exchange.

Fifth, there are direct de jure barriers(legal restrictions) to foreign participation in the economy. Examples Ethiopia legally excludes foreigners from the financial sector, and Tanzania only allowed foreign bank entry since the early 1990s,Ghana still bars foreigners from certain trading and services sectors. Sixth, Many countries have legal requirements for (or have given officials wide discretionary powers to add) performance requirements, such as local employment, local partnership or local inputs.

Indirect barriers typically include bureaucratic and other informal impediments to foreign investment, such as ambiguous regulatory approval, delays in customs clearance, visas for expatriate workers, or weaknesses in the legal system.

African countries, like most other developing countries have taken various initiatives to attract FDI.

These initiatives include incentives, signing of investment treaties and investment promotion activities.

Incentives can be described as policies used to attract internationally mobile investors. The incentives offered by governments can be grouped into three categories such as fiscal, financial and rule or regulatory-based: Fiscal Incentives Reduced tax rates Subsidies, Exemptions from import duties Accelerated depreciation allowances Investment and reinvestment allowances Deductions from social security contributions

Financial Incentives Grants Loan and loan guarantees

Rules-based incentives Modifying rules on workers rights Modifying environmental standards Greater protection for intellectual property rights (CUTS, 2001)

Incentives are only a part of what governments offer to attract foreign investors to their countries for investment. Increasingly countries have entered into investment treaties, both bilateral investment treaties and multilateral ones because they include the following:

Fair and equitable treatment for foreign investors in terms of applications for investment approval and setting up their businesses. Specific provisions on compensation for expropriation and non-commercial losses. Dispute or conflict settlement mechanism.

Most countries have established investment promotion agencies whose main purpose is to attract FDI and to look after foreign firms once they have set operations. Investment promotion agencies usually fulfill a dual role :

By acting as a one stop for investors to deal with regulatory and administrative requirements. By changing or modifying investor perception of the country by attending and organizing investor fairs and by distributing materials. Investment promotion covers a range of activities, including investment generation, investment facilitation, aftercare services, and policy advocacy to enhance the competitiveness of a location.

Governments should also try and create an enabling environment. The term enabling environment has been coined to include legal, political, social and economic factors that make a country an attractive destination for investment. These include:

1- Stability It is pointed out that social and political stability of a country plays a very important role in determining whether investors will consider investing in a country. Countries experiencing civil unrest and political upheaval are unlikely to be considered as investment destinations.

2- Transparency in decision-making is another important issue. Investors, seeking sites for long-term investment for large-scale production to serve regional and global markets, attach great importance to the predictability of the operating environment of their chosen investment sites. The key to attracting FDI is timely review and constant monitoring of results, the ability to change policies and adapt to new circumstances.

3- Macroeconomic policies Within the context of a stable and transparent economic and regulatory environment, the main determinants of investors decisions are broad macroeconomic factors such as the size and growth of the market and the costs of production.

Governments should therefore put in place sound macroeconomic policies that will help the country achieve development objectives as well as helping the country to attract FDI.

4- Trade policy The trade regime in a country may encourage enterprises, local and foreign, to invest in developing local capabilities.

A highly protected regime or a large regime with very restrictive laws will put constraints on the entry and exit of local enterprises, discourages technological upgrading, and isolate the economy from international trends. Liberalizing the trade regime will encourage and bring competition in the economy, forcing domestic firms to improve efficiency.

Governments should replace burdensome regulations with good regulations that will support a countrys development aims. This should include maintaining restrictions on capital flows, maintaining screening procedures and impact assessments prior to establishment for major projects, restricting investment in key strategic sectors . requiring firms to follow good standards in the operational phase.

1- Developing countries encounter different financial

problems that urge them to search for solutions. Explain 2- Investment decisions entail critical riskiness and adventure that oblige investors to think rationally . Explain this statement and define investment and clarify its types. 3- M&As provoked several criticisms. Explain

4- Are you with or against the following statements? Justify your approval or disapproval: A- External borrowing is preferred to FDI. B-M&A is preferred to Green field investments. C- Investment promotion agencies usually fulfill a dual role D- transparency does not help in predictability of environments where investors perform their transactions. 5-Barriers to FDI are varied and different in the developing countries . Explain and comment. 6- Enabling environment is a decisive factor to attract FDI . Explain this statement and apply it to your country. 7- Precautions when formulating policies to attract FDI are varied and different. Explain