How to handle foreign direct investment
Foreign Direct Investment (FDI) is an indispensable element in the development of underdeveloped counties also known these days as emerging economies. Those countries which have welcomed FDI have adopted policies towards them that are by no means identical.
We, citizens of the country, ought to understand the benefits and harms that FDI can bring. We must influence our government to devise policies which, while encouraging FDI do not pawn our economy. We must proceed by arguing for the admission of FDI.
It is the large multination enterprises (MNEs) or multinational corporations (MNCs), which invest in countries beyond their national boundaries. Each MNE has specific reasons for investing abroad.
There are those which want to access natural resources found abroad but not in the home country. Natural resources such as: oil, gas, rubber, cotton, uranium, coffee are required for factories in the home country, which manufactures them for the home market as well as for export.
There are MNEs, which transfer some of their production facilities by way of scaling tariff barriers. They want to penetrate huge markets abroad by establishing branches there.
Regional groupings such as Sadc and Comesa do attract substantial FDI. Member countries of these economic blocs compete for MNE investments. Each country would like an MNE to locate its factory within border but use the rest of the region as its market.
Malawian ministries concerned with trade and development must keep themselves cognisant of their counterparts’ policies and attitude towards each type of MNE.
Foreign direct investors compare the incentives member countries of Sadc and Comesa offer. They locate their factories in the countries with the best incentive. If Malawi offer weak investments and frustrates potential investors, we will end up as a market for products manufactured in other parts of the economic bloc.
An MNE investment may make use of resources which were idle in the host country. Uranium had been known to exist in Karonga for decades but was idle until an Australian company got interested in the resources. Some multinationals have the technological know-how required for exploring hidden resources. For example, most Malawians do not know if there is oil somewhere in the water or soil. They do not have the know-how for exploration.
A foreign direct investor’s factory may create employment for thousands of people. As soon as computers and mobile phones were introduced into Malawi, new small-scale workshops of repairers sprung up.
An MNE may manufacture products which substitute for imported ones, thereby saving the host country’s foreign reserves. It may do even better by manufacturing products for exports, which earn foreign reserves thereby enabling the country to import goods and equipment which are necessary for development.
Multinational enterprises may in the long run be a burden on the economy. In the short-term, they bring into the country the capital and wherewithal for imports. There will come a time, however, when the MNE will have to send profit and dividends to the home country to satisfy stakeholders. At this stage, the host country will suffer outflows of exchange reserves and may face balance of payments crises.
Not all citizens of the country where the MNEs have its origin are happy with FDI. Trade union leaders complain that by investing abroad, the MNE is exporting jobs. This is the case when a corporation establishes a subsidiary abroad to benefit from cheaper labour. American corporations have often established subsidiaries in Mexico or India.
Some nationalists fear that through FDI, the corporation transfers the technology which firms abroad will use to undercut firms of the country where the technology originated. First, Japan then China improved the technology they had borrowed from western countries and conquered world markets.
To a host country, MNEs through FDI are most beneficial;
(a) When they make use of resources which are idle. Even before independence, Malawians were told that there are bauxite deposits on Mount Mulanje. To this day, no entrepreneur has mined them. They are idle resources.
(b) Where it has the technology that the host country lacks and willingly transfers it to local firms.
(c) When its subsidiary creates jobs for idle labour and makes use of domestic firms as contractors for the supply of parts or raw materials.
(d) When its products substitute for import while some are exports, thereby not only saving foreign exchange but augmenting it.
Countries such as Malawi benefit from FDI provided precautions are taken. MNCs do not leave their countries with the spirits of missionaries. They go out to hunt for wealth opportunities. Those who deal with them must be shrewd enough not to bargain away their sovereignty and economic power.
