From the recipient countries’ view-point, export credits can be considered to resemble direct investments as a source of private long-term capital. However, four important distinctions should be made between export credit and direct investment. First, export credits like portfolio investments are free from the foreign control which is associated with direct investment, with the result that allocation and management are in the host country’s hands. Second, at the same time, export credits do not promote the transfer of foreign technology and managerial “knowhow” to the same degree as direct investments. Third, the repayment of export credits is rigidly fixed, whereas the equity component of direct investments carries no fixed repayment terms. Fourth, while interest on export credits is fixed and mandatory, earnings on equity investments are not limited, but are determined entirely by the success of the investment project. Furthermore, such earnings may be either reinvested without foreign exchange cost to the host country, or remitted as dividends to the foreign investor, depending upon future developments.

Related Subject(s): Economic and Social Development
Sustainable Development Goals:
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