Sharing benefits

Let us not forget human rights when talking about foreign investment, reminds a recent research paper ( > www.ssrn.com ). Collective or group rights of nationals of the host state can be violated by foreign investors, caution Tarcisio Gazzini and Yannick Radi in the paper titled, Foreign investment with a human face, with special reference to indigenous peoples' rights . Among the examples the authors mention are the construction by foreign investors of two hydroelectric dams, respectively in Brazil and Guatemala inhabited by indigenous peoples; and about a Brazilian company that has reportedly abandoned an investment project related to the construction of a dam on the Tambo River in the Peruvian Amazon due to the insurmountable opposition of local indigenous peoples.

Advising, therefore, the host state's authorities to act in ‘a coherent, transparent, non-arbitrary, non-discriminatory, unambiguous and reasonable manner,' the authors recommend that foreign investors should be informed in a timely manner on the need to comply with the relevant domestic and international obligations.

On the subject of participation by indigenous peoples in the profits of foreign investment affecting their land or the natural resources located in their land, the paper speaks of a few examples in the extractive sector. “For instance, indigenous peoples have been allocated a portion of royalties and other revenues, as in the case of the Law on Hydrocarbons 3058, enacted in Bolivia on 17 May 2005 according to which 5 per cent of the direct hydrocarbons tax is earmarked for an indigenous development fund.” The paper alerts, however, that the issue of dividing the pie may prove particularly difficult. A case in point is the current dispute between the Mayan Ixhil population living in San Juan Cotzal (Guatemala) and the Italian energy giant ENEL over the sharing of the profit related to the hydroelectric dam in Palo Viejo. Instructive material for those evaluating foreign investments closer home.

Islamic investment

Investors could form portfolios with conventional and shari'ah compliant securities to take full advantage of risk diversification, suggests a study on Islamic finance. The indexes that have passed rule-based screens for shari'ah compliance eliminate companies conducting non-shari'ah compliant activities and those which do not meet shar'iah requirements for debt levels and interest income and expenses, one learns.

Companies with more than 5 per cent of their activities in alcohol, tobacco, gambling, pork industry, trade in weapons, and any activity deemed offensive to Islam are not eligible for Islamic indexes, informs The Performance of Islamic Investment: Evidence from the Dow Jones Islamic Indexes by Kaouther Jouaber-Snoussi, Meriem Ben Salah and Marie-Josèphe Rigobert. “In addition, total debt should be less than 33 per cent, liquidity ratio should be 33 per cent and interest income from cash and interest-bearing should not be more than 5 per cent of the total income.”

The paper wraps up with the counsel that Islamic ETFs (exchange-traded funds) be considered as complementary investment vehicles. And that Islamic index management can offer an alternative investment strategy for fund managers.

Insights of importance also to researchers studying ethical and socially-responsible investing.

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