Obstacle Course

The Administration, which hopes to make private investment abroad a big part of its "Trade, Not Aid" program, got some discouraging news last week from one of the program's most ardent supporters. In a 132-page report, the first installment of a three-part study, the Commerce Department's Office of International Trade tested the climate for U.S. venture capital in the world's major countries and came to a chilling conclusion: "Prospects for a greatly increased flow of U.S. private investment abroad are unfavorable in the next few years."

Everywhere OIT men looked, they saw the same basic obstacles: currency restrictions, freezing of investment capital, discriminatory taxes, competition from government-supported monopolies, and hostility to foreign capital. As long as these conditions prevail, said OIT, "it is not likely that the rate, nature or direction of private investments will be substantially changed." Area by area, the report stated:

In Latin America, where U.S. private investments exceed $4.7 billion (40% of all U.S. venture capital abroad), the biggest problem is "creeping expropriation," i.e., harassment of U.S.-controlled enterprises by discriminatory taxes and labor requirements. Major offender: Argentina, Brazil's liberal treatment of capital is off--set by social ferment and inflationary hazards, and Venezuela has limited attractions outside of oil and mineral resources. "One of the most favorable areas" for U.S. investment, according to OIT, is Mexico.

In Europe, where U.S. investors' stake is approximately $3.5 billion, OIT men found the obstacles to U.S. capital much the same. The United Kingdom, where $847 million in U.S. money is invested, offers "generally satisfactory" conditions. But France is "uninviting" to U.S. money; impoverished Italy, and West Germany with its high taxes and vulnerability to Communist attack, offer few opportunities.

In Africa and the Near East, growing nationalism and lack of industrial development discourage much new U.S. investment, except in mining and oil. However, a few Near East countries, such as Turkey and Egypt, are taking a more enlightened attitude toward foreign capital. Rigid screening of new projects in British, French, Belgian and Portuguese dependencies in Africa prevents major participation of U.S. investors. As a result, almost two-thirds of the U.S.'s relatively small investment in Africa ($350 million) is in South Africa, where the investment climate is still favorable, and in Liberia. The Far East attracts little U.S. private capital: only $284 million, or 2.4% of total U.S. direct investment abroad.

There were a number of things (e.g., lower taxes on profits earned abroad) that

OIT recommended that the U.S. could do to make it easier for venture capital. But the big job of attracting U.S. capital, OIT implied, is squarely up to the foreign governments themselves. Unless they relax import controls and other obstacles, there is scant hope that they will get much expansion in U.S. investments.

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