The term ‘investment’ may have various definitions in different disciplines and contexts.138 It can be defined as a commitment of funds made in the expectation of positive return, i.e., profit, with a risk assumed.139 According to this definition, profit is essential. A fund is committed to gain profit. However, there is a risk of loss during the investment. To avoid loss, proper care and management is required. From the legal point of view, investment is defined as ‘expenditure to acquire property or asset to produce revenue.’140 This definition also includes an essential element since producing revenue means profit making. Investment, under international investment law, is defined as any kind of asset such as property, rights and interests.141 However, this definition does not clearly incorporate profit making as an important element to define ‘investment;’ it is simply any kind of asset.142
Investment may be either international or domestic. Foreign investment143 is classified into
portfolio investment and foreign direct investment. Portfolio investment is that where there is a movement of money for the purpose of buying shares in a company formed or functioning in another country.144
137 Bulajic (n 122 above) 44.
138 See Tesfaye Abate Abebe Investment law teaching material (2008) 2. The concept ‘investment’ is subject to
debate. For detailed treatment, see S Manciaux ‘The notion of investment: New controversies’ (2008) The Journal
of World Investment & Trade 1-24.
139 V Gangadhar & GR Babu Investment management: Including portfolio management & security analysis
(2003) 2.
140 BA Garner (Editor-in-Chief) Black’s law dictionary Eighth edition (2004) 844.
141 SP Subedi International investment law: Reconciling policy and principle (2008) 58. Investment may be
defined restrictively or broadly. For the treatment of the term under ICSID, see JD Mortenson ‘The meaning of “investment”: ICSID’s Travaux and the domain of international investment law’ (2010) 51 Harvard International
Law Journal 257-318.
142 Asset is defined as an ‘item that is owned and has value. The entries on a balance sheet showing the items of
property owned, including cash, inventory, equipment, real estate, accounts receivable, and good will.’ It is the entire person’s property. Garner (n 140 above) 125-126.
143
Foreign investment is defined as ‘a transfer of funds or materials from one country (called the capital exporting country) to another country (called the host country) in return for a direct or indirect participation in the earnings of that enterprise’ See M Sornarajah The international law on foreign investment Third edition (2010) under foot note 10.
144
34 Foreign direct investment (FDI), on the other hand, is an ‘investment made to acquire a lasting management in an enterprise operating in a country other than that of the investor.’145
Foreign direct investment, one type of international investment, is essential in bringing about development. Foreign direct investment will transfer necessary technology, knowledge and skill that are essential inputs for development to the host state. It also offers the opportunity to use the advantages of liberal and open economy.146
Foreign direct investment (FDI) can boost exports and foreign currency earnings.147 FDI
flows to developing countries from developed countries to transfer technology that promotes development in the former countries.148 However, the technology that is transferred should be relevant to the host state. The technological level of the host state is also of a great importance. Where the absolute technological level in the host state is low, or where the technological gap or difference is high, local enterprises are unlikely to be able to absorb foreign technologies transferred.149 Generally, foreign direct investment helps to transfer and diffuse technology in the host state.150
International investment law regulates international investment activities. International investment law is a branch of international law, which aims at regulating international investment, called international investment law. 151 Foreign investment is regulated by customary international law, bilateral or regional investment treaties.152 International investment agreements (IIAs) are instruments in international law that impose the duty to protect investor’s rights on
145 TT Hung ‘Impacts of foreign direct investment on poverty reduction in Vietnam’.
146
KR Gray ‘Foreign direct investment and environmental impacts- Is the debate over?’ (2002) 11 Review of
European Community & International Environmental Law 306 306.
147 M Trink The role of investment promotion agents at attracting foreign direct investment and their impact on
economic development in Central Europe (The Czech Republic and Slovakia in Comparative Perspective)
unpublished master’s thesis, Central European University, 2007)12. FDI offers potential for raising the quality of exports in developing countries. See generally, T Harding & BS Javorcik ‘FDI and export upgrading’ (2011).
148 Trink above 13; P Conconic et al ‘The internationalization process of firms: from exports to FDI’ (2015) 3. 149 Trink, above.
150 The foreign investor will train workers on the new technology and this enables to diffuse the technology in
the host state. The technology will also be available to domestic firms that would enable them to be more productive. However, the empirical evidence about FDI and technology diffusion is mixed. N Foster & O Memedovic ‘The role of intellectual property rights in technology transfer and economic growth: Theory and evidence’ (2006) 30.
151 See Sornarajah (n 144 above) 87. On the basis of Art. 38(2) of the Statute of the International Court of
Justice, he explains treaties, custom, general principles of law, judicial decisions as sources of international investment law.
152
35
States.153 International investment law is part of international public law.154 Only few IIAs are binding while most of them deal with investment promotion issues employing very general treaty language.155