Classification of foreign investments

  Foreign investments can be classified by the following signs:

1) real, financial and non-material depending on the assets into which the capital is invested. Real investments are investments into a long-term project associated with purchase of existing or new manufacturing entities of real assets abroad which directly or indirectly participate in the production process. Financial investments areacquisition of securities or monetary assets, i.e. this is investment into financial property, purchase of debt rights for the participation in the business of other firms. Nonmaterial investments are purchase of concessions, trademarks and other nonmaterial rights.

2) by the patterns of ownership of investment resources into: public, private (non-governmental) and mixed investments. State investments are the funds of state budgets directed abroad by the decision of government departments or intergovernmental organizations. These funds can be given as state loans, credits, grants, relieves. Private (non-governmental) investments are the funds of private investors invested into investment mediums located outside territorial boarders of the country. Mixed foreign investments are investments made abroad jointly with a state and private investors.

3) Depending on investment mediums: direct foreign investments, portfolio investments and other investments. Direct foreign investments (DFI) are investments of foreign investors which give them the right to control an enterprise on the territory of another state and to take an active part in managing it. Portfolio investments are investments of foreign investors associated mainly with investing into securities with the aim of getting or increasing profits in the form of interests, dividends or difference in market-prices. They also include investments of foreign investors into obligations, bills of credit, other debt liabilities, government and municipal securities. Other investments are bank deposits, trade credits, credits of governments of foreign countries, credits of international financial organizations, other credits, etc. /1/

Division of foreign investments into direct, portfolio and other investments is widely-spread one in the economic literature therefore this classification should be considered in more detail.

  As far as direct foreign investments are concerned their characteristic feature is their allotment for manufacturing purposes, long-term, ability to ensure for the investor management control over an enterprise.

  Direct investments have a priority importance as they substantially impact national economy and international business in whole. The significance of DFI is in: 1) its ability to make investment processes more active by virtue of its inherent multiplicative effect; 2) its ability to promote general socio-economic stability, encourage production investments into resource base;　3) combination of transfer of practical skills and qualified management with mutually beneficial exchange of know-how making international market entry easy; 4) in the activization of competitiveness and encouraging the development of small and medium enterprises; 5) in its ability to speed up the development of sectors and regions provided correct organization, encouragement, allocation are ensured; b) in promoting growth of employment and raising the level of population’s incomes, expanding a tax base./1/

  Direct foreign investments: a) are a good additional source of means for renewal and expansion of fixed capital, realization of investment projects and programs which ensure revival and upsurge of economy, saturation of domestic market with competitive goods and services; b) are a source of means for introduction of progressive technologies, know-how, modern management and marketing methods; c) being directed to specific objects are often supported by training of personnel who make an effective use of new technologies, market mechanisms, international contracts, etc.; d) help to gain and consolidate experience of functioning of market economy, “rules of game” inherent to it which results in the inflow of foreign capital, makes an investor confident that invested funds will return with enough profit and speed up an investment climate in the country which is favorable as for foreign so for home investors; e) speed up the process of integration of the economy into world economy, development of effective and integration processes, favor the use of advantages of international division and cooperation of labor, finding niches in the world economy and market; f) unlike loans and credits they do not have a heavy incidence on the foreign debt and even help to get means to pay them off.

  Basic methods of portfolio investment include: a) purchase of securities on the markets of other countries; b) purchase of foreign companies’ securities in own country; c) investment of capital into international investment (unit) funds. 

  Mobilization of foreign portfolio investments is also quite an important task for Russian economy. With the help of foreign portfolio investors’ means the following economic tasks can be solved: 1) replenishment of Russian enterprises’ own capital by floatation of Russian joint-stock companies’ shares among foreign portfolio investors; 2) accumulation by Russian enterprises of borrowed current assets for the realization of specific projects by floatation of Russian issuers’ debt securities among portfolio investors; 3) replenishment of the federal budget and the budgets of Russian Federation’s constituent territories by floatation of debt securities issued by appropriate authorities among foreign investors. 4) effective restructuring of Russian Federation’s foreign debt by converting it into agency pass-throughs (government bonds) with their subsequent floatation among foreign investors. /1/

  Other investments fall on the main share and make about 57% of investments’ volume. This group of investments (by challenge subjects) is public investments. States are major capital exporters. Export of official capital is done in the form of economic, technical and military assistance to the developing countries; the role of the state as a guarantor of private capital export increases. In many countries there are governmental organizations which insure private investors. The state takes part in the activities of international financial institutions (IMF, World Bank and its group, EBRD. /2/