Warning We use cookies to personalise ads and to analyse our traffic. We also share information about your use of our site with our advertising and analytics partners.

Accept our cookies and get unlimited access.

Foreign Direct Investment And Its Implications

China's foreign direct investment FDIChina's foreign direct investment FDI

The expression foreign direct investment (FDI) is one that has become very popular in the present dispensation. This is because there is definitely a connection between the present atmosphere of globalization and the concept of foreign direct investment. More to the point, liberalization in some countries seems to encourage foreign investors to set up businesses in these countries.

How to describe FDI?

In very simple terms, FDI can be described as a situation whereby a foreign company sets up an enterprise or buys into an already existing enterprise outside the economy of the investor. In case this definition is not clear enough, it can be made even clearer. If an American company decides to invest in nearby Mexico, this can be considered a very good example of FDI. In most cases, the normal practice would be for the investors from a stronger economy to invest in smaller economies. Thus, most people associate FDI with American countries operating in Mexico, China, Brazil or smaller countries in Africa and Asia.

China's foreign direct investment FDIIn business, the investor invests in a particular location because there are definite advantages in those places. Some reasons for direct foreign investment may include lower taxes, low costs of labor, tax concessions or superior currency value. Other advantages may include the presence of large markets in the foreign countries and favorable banking policies. In some cases, certain countries encourage investors to invest in the industries where local investors may not be able to cope. A very good example is the oil industry in Angola. This country is still recovering from the effects of a long civil war and this is why its oil and gas industry is dominated by foreign players who have joint ventures with the federal government of Angola. Another good example is the fact that Niger republic (next door to Nigeria) has just commissioned its first refinery which was built from scratch by a Chinese company.

Of course, it does not always follow that business men from the developed countries will always invest in the developing economies. There are instances where investors from developing nations can invest in the developed economies of Canada, America and Europe. For instance, there are investments in America owned and operated by rich investors from Dubai, Saudi Arabia and Kuwait. There are also reputable firms in the UK controlled by investment firms from South Africa, India and Brazil.

FDI and arms industry

It has to be pointed out that there are instances where politics may play very important roles in foreign direct investment. For instance, no country will want its arms industry to be controlled by any foreign firms for very obvious reasons. Meanwhile it has to be stated as well that investors are in business to make profit. For this reason, they will not invest in countries where the government policy is inconsistent. Countries which have nationalized foreign investments in the past will find it very difficult to attract foreign investors. By the same token, countries which are known for political instability may not be able to attract investors unless the system is sanitized.

All told, foreign direct investment is a great idea under the right conditions. The investor makes profit and the country gets the benefit of development and creation of employment for its citizens. These are some of the points in favor of foreign investment for investor and host country.

Finding the best refinance rates on your home mortgage will take some shopping around to find the best terms. It also will...
Finding the best refinance rates on your home mortgage will take some shopping around to find the best terms. It also will require some work on your part so that you can qualify for the refinancing package that best suits your needs and wallet. Things You Can Do to Get the Best Refinance Rates A priority for anyone in the market for a refinance loan, and for their own general financial health, is to raise your credit score and to lower your debt. Often, these issues go hand in glove, so it is possible to accomplish both at once. Raising your credit score...
A poor credit score can hinder a person's ability to access credit from mainstream lenders. Unfortunately, about 56% of American...
A poor credit score can hinder a person's ability to access credit from mainstream lenders. Unfortunately, about 56% of American consumers have a low credit rating. Fortunately, there are other ways of accessing funds even with a low credit score. These include: Try a Credit Union Compared to banks, credit unions have more lenient credit requirements that make them ideal lenders for consumers with bad credit. In addition, credit unions generally offer better interest rates compared to banks, according to figures published by Informa Research Services....
A home equity loan can be handy when it comes time to finance a major life expense like home remodeling, a child’s college...
A home equity loan can be handy when it comes time to finance a major life expense like home remodeling, a child’s college education, or maybe even purchasing an investment property. This is the time when you get to reap the benefits of all those years paying a monthly mortgage. In simple terms, this type of loan allows you to borrow against your home, using the capital you have sitting in it as collateral. As with any other type of loan, banks have stringent lending procedures, but if you’ve been tending properly to your credit score and other areas...