The Importance of Investment and its Relations Between Foreign Investment and Dispute Resolution Methods




“Research Paper”







The Importance of Investment and its Relations Between Foreign Investment and Dispute Resolution Methods







October 2018












Table of Contents

Abstract i

Acknowledgement i

Preface. ii

Chapter One. 1

  1. Introduction. 1
  2. Objective. 1
  3. Importance. 1
  4. Questions. 1
  5. Hypothesis. 2
  6. Methodology. 2

Chapter Two. 3

  1. Capital 3
  2. Investment 4
  3. Foreign Investment 4

4.1.  Direct Foreign Investment 5

4.2.  Indirect Foreign Investment 5

  1. Reference. 7



Chapter One

1.    Introduction

This study covers the definition of investment and its importance on economic growth of Afghanistan. However, there would be certain mechanisms and rules to organize all the related activities in its specific order in light of the rules and regulations of I.R of Afghanistan. In one hand, the government motivates and encourages domestic individuals to invest in Afghanistan to raise the domestic products of country and also to compete with other similar products in the region. The major goal would be to change Afghanistan from an importer country to an exporter country with particular quality and benefits which has absolute advantages i.e. handicrafts, fresh and dry fruits, carpet, gemstone.

Although there are other great opportunities in which government of Afghanistan highly encourages foreign investors to invest in Afghanistan. Due to the fact that Afghanistan is enriched with mineral and natural resources, these foreign investors by establishing factories can utilize and extract natural resource and product high quality premium goods.

All mentioned above requires very specific legislation and legal mechanisms. In case there would be any conflict or dispute, it requires a related body to oversee the issue and solve the dispute raised. This study covers the methods of dispute resolution in relation to the foreign investments.

2.    Objective

The main objective of this study is to highlight the investment and importance of the foreign investors in Afghanistan focusing the methods of dispute resolution and which body or public entity is responsible of such case proceedings.

3.    Importance

Based on the understanding of economic status of country and the rate of unemployment, it is necessary to attract investments in both domestic and foreign ways. To regulate the activities of foreign investments in Afghanistan, this study reflects and highlights of procedures for investment and also the method of dispute resolutions in cased there is any conflict between or among the related domestic and foreign investors.

4.    Questions

  1. What is foreign investment?
  2. What is the importance of investment in Afghanistan?
  3. What are the methods of dispute resolution for foreign investors based on laws and regulations of Afghanistan?

4.    Hypothesis

This study bolds and highlights the concept and importance of investment focusing on the foreign investors. As well as, this study covers the methods of dispute resolution in regards to the foreign investments based on the laws and regulations of the country. Furthermore, this paper provides information about types of foreign investment, the effect of investment in economic development of country, the dispute resolution methods and the types of dispute.



5.    Methodology

The methodology used in this study is qualitative method, used resources from books, certified websites, credible journals and authors. Based on the purpose of the study, other used method is descriptive research method in which gives description about the terms stated in the main title of the study.



Chapter Two

Definition of Foreign Investment

1.    Capital

 The economists give a definition about the capital and compares it with “Quicksilver”, a very instable item which can be changed due to a minor action. In other cases, the economists compare it as a flying bird which flies with a low pitch of sound and escapes faster than human being. Nowadays, this flying bird has a vital role in economics of the countries all over the world and migrates to the different parts of the world, therefore it has been said that they (investment) has no specific homeland. Now, in order to better realize the term of “investment”, let’s have a glance over the definitions given in economics and other separate sciences.

Yet in another definition it describes that investment is a good which is used in production of another good. It is also possible that is the investment is involved, directly and indirectly, in production of other goods. (Scruton, 2007)

In Economics terms, the capital is counted as cash and non-cash assets which is one of another production factors along with the human resources, natural resources as triple factors of production. (Saaie, 1379)

In the Private Investment Rule[1] Art. 3 describes the definition of Capital assets but not the capital as following that capital can be all the movable and immovable assets including the machineries and other equipment. Addition to this, in the Support and Encouragement of Investment Agreement between Afghanistan and Iran, the 1st Article describes the capital that all the following items which are used by investors in-line with the rules and regulations of specific territory A) movable and immovable items and its rights; B) Stock in corporations; C) Money or other receivable money; D) Intellectual and industrial property such as patent, business name, business reputation and technical knowledge; E) The right of development, extraction and usage of natural resources based on the international treaties.

Based on the above definitions and as a conclusion, the definition of capital is total resources and tools to produce wealth. Or in other words, the capital is the good created by human. The legal definition of capital is broader than economic definition which includes the professional, technical, inventing and patents aspect of work and production.


2.    Investment


Based on the definition in Investopedia, an investment is an asset or item acquired with the goal of generating income or appreciation. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or later will be sold at a higher price for a profit. (Investopedia, n.d.)

Furthermore, investment is one of the most important variables in economics. On its back, humans have ridden from caves to skyscrapers. Its surges and collapses are still a primary cause of recessions. Investment is usually the result of forgoing consumption. In a purely agrarian society, early humans had to choose how much grain to eat after the harvest and how much to save for future planting. The latter was investment. In a more modern society, we allocate our productive capacity to producing pure consumer goods such as hamburgers and hot dogs, and investment goods such as semiconductor foundries. If we create one-dollar worth of hamburgers today, then our gross national product is higher by one dollar. If we create one-dollar worth of semiconductor foundry today, gross national product is higher by one dollar, but it will also be higher next year because the foundry will still produce computer chips long after the hamburger has disappeared. This is how investment leads to economic growth. Without it, human progress would halt. (Hassett, 2004)

In today’s world, the main factor of economic development is domestic or foreign investment. Without this factor the economic development is not possible.

In the other word, we can describe investment that is to utilize the capital in order to raise the income through risking as specific amount of money. Hereby, the concept of investment to produce goods is similar to machineries and transportation vehicles to fulfill the needs and requirements of human. (Downes, 1998)

3.    Foreign Investment

The foreign investment is the entrance of foreign capitals into the economic activity of another country which includes the most of share and ownership. (Downes, 1998) In another particular and specific definition the foreign investment is: “the transformation of intellectual and physical capital from one country to another with the goal of wealth production with general or partly ownership. (Sornarajah)

The Private Investment Rule of Afghanistan at its 3rd Article describes the definition that: “the foreign investment is the capital which is transferred to the country like the exchangeable currency.” We can also say that the transfer of capital in form of money or technology from one country to another country is investment or in another interpretation, the transfer of capital in international ground which the first country is exporter and the 2nd country is the host country.

The foreign investment is divided in to two parts based on the speed of the movement, time frame and form of it as following: 1) Direct Foreign Investment; 2) Indirect foreign Investment or portfolio

4.1.  Direct Foreign Investment

Is a type of investment which is aimed for sustainable benefit in another country without the origin country of investor and the investor has the intention to join the economic activities of that country. (International Monetary Fund & Organization for Economic Co-operation and Development, 2003)

UNCTAD is also defining the foreign investment that a long economic relation that the owner of company is operating its activities in another country. In another definition, similar to the UNCTAD definition, the Development and Co-operation Organization defines the term as a long economic relation. (Sasse, 2011)

4.2.  Indirect Foreign Investment

The investor is more likely to not interfere in the operations of company or manage it in another country but in general, the investment is possible through buying stock, bonds which can be called as indirect foreign investment. In specific, the indirect foreign investment is transferring cash or intention of buying stock or bonds in a company forming in another country.

This kind of investment is mostly not welcomed by the countries based on these reasons. Firstly, the investor’s intention is to buy the stock or bonds in a low price and sell it for a higher price in order to obtain more income. This type does not help the economic growth and creating jobs or increase the income. Secondly, the foreign investor can sell stock or bonds and transfer the money back to his/her origin country or another thirds country. Mostly this case happen when the country does not have economic stability or faced a serious recession. This vibrant example has been in South Asia crises in 1997.




Chapter Three

Importance of Foreign Investment  




6.    Reference

  1. (n.d.). Retrieved from Investopedia:
  2. Downes, J. (1998). Dictionary of Finance and Investment Terms (5th Edition ed.). New York: Barrons Publisher.
  3. Hassett, K. (2004). Retrieved from The library of Economics and Liberty:
  4. International Monetary Fund & Organization for Economic Co-operation and Development. (2003). Foreign Direct Investment Statistics, (p. 23). Washington D.C.
  5. Saaie, A. (1379). Political Issues, 3rd World. Samt Publications .
  6. Sasse, J. P. (2011). An Economic Analysis of Bilatral Investment Treaties. (p. 6). Hamburg: Hamburg Gabler Publisher.
  7. Scruton, R. (2007). The palgrave Macmillan Dictionary of Political Thought, (3rd Edition ed.). New York: Palgrave Macmillan Publisher.
  8. Sornarajah, M. (n.d.). The International law on Foreign Investment . London: Cambridge University Press.


[1] قانون سرمایه گذاری خصوصی، منتشره در جریده رسمی سال ۱۳۸۴ شماره ۸۶۹.