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Foreign Direct Investments - Essay Example

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This essay "Foreign Direct Investments" discusses investments from abroad that are used by governments of many countries as a way of mopping up funds for their developmental needs. This works to the advantage of the companies and organizations as well…
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Foreign Direct Investments
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Research Proposal Topic Critical review of Foreign Direct Investments (FDI), their effectiveness as an investment strategy and tool Introduction and Context Investments from abroad are used by governments of many countries as a way of mopping up funds for their developmental needs. This works to the advantage of the companies and organisations as well. As part of a long term strategy, the companies are on the lookout to get a foothold at a foreign location, so that gradually they can exploit the marketing potential of this new location. There is always an element of risk involved in shelling out finances at these foreign locations. If the circumstances in the host country become investment-unfriendly, the investments done by these companies and organisations will simply disappear, thus resulting in net losses. But, if the circumstances keep improving the level of confidence goes up which in turn results in an advantageous arrangement for the foreign contributor as well as the host country. The policies of liberalisation and facilitation adopted by countries around the world are aimed at attracting more investments from abroad and attaining better growth rates. Hartungi (2006), cautions that there are a number of developing countries with invitations to foreign institutional investors, but many such economies are characterized by weaker economic, legal, and political institutions, which often makes them vulnerable to high levels of corruption, insecurity, and conflict. The liberalization and facilitation policies adopted by the developing world are aimed at doing away with such a notion and attract more foreign investments. Quite often the transition economies find themselves in a difficult situation on issues like attracting FDI vis--vis the need to sustain or create domestic system. There are some countries, particularly in the Asian subcontinent, which have been able to achieve substantial growth rates on account of renewed emphasis on liberalization policies and commitment to growth oriented policies. These countries have been able to invite MNCs and FIIs in many of their developmental projects, but on the other hand many countries like Afghanistan, Sudan, Zimbabwe, Iraq etc. have not been traditional attractive locations for the international community. Reasons like unstable or unfriendly governments, war-like situations, weaker market regulations, undue protectionism/ subsidies by the host country etc. are the factors responsible for not many FDI proposals getting through. This study is therefore being undertaken to assess the effectiveness of FDI as an investment strategy and how this proves beneficial for the countries and the international institutions. Prevailing situation in some countries like Zimbabwe and Sudan is somewhat different as compared to some other hot destinations for FDI. There are international agencies which keep track of a number of factors for a country and continue to update regular inputs. These institutions in turn come up with suggestions and guidelines about the prevailing political, economic or socio-cultural circumstances in each country. The foreign institutional investors in turn analyse all such reports and then arrive at their final decision about the investment. For example the Economic Intelligence Unit (EIU) has stated in its outlook for 2010-2011 for Zimbabwe that, "Zimbabwe's power-sharing government will continue to struggle over the forecast period" (EIU, 2009)." This is certainly not an encouraging sign for the investors. In another such forecast for Sudan EIU states that, "Sudan faces significant political challenges, including elections in April 2010, tensions in Darfur and the diplomatic difficulties caused by the International Criminal Court's arrest warrant for the president, Omar al-Bashir" (EIU, 2009a). But it is worth emphasizing here that as compared to the situation in 2006-08, Zimbabwe has improved its ranking by about 30 places in the World Economic Forum's 'Global Competitiveness Report 2009-10' in terms of country's overall competitiveness (WEF, 2009). Therefore the overall investment climate depends upon a number of national and international factors. During the study it will be my endeavour to analyse some recommendations and guidelines put forward by the reputed international bodies, about war ravaged economies like Zimbabwe and Sudan. An effort would also be made to assess the strings attached with FDI proposals in general and in the context of these countries in particular. Research Questions and Objectives The main intention of the study is to develop an understanding of the concepts of foreign direct investments in general and how such investments are strategically used by all the stakeholders in the economy. During the study an effort will be made to analyse the general investment climate in Sudan and Zimbabwe and how these countries have progressed over the years in the post conflict period. Besides seeking the opinion and recommendations of reputed organisations and analysts, an attempt would be made to seek answers to the following key objectives. Establish a well studied relationship between the economic prospects of the country and the FDI scenario. The investment climate undergoes rapid changes in line with the domestic as well as international conditions. How these conditions have affected the economies of Sudan and Zimbabwe over the years Analyse some of the progressive economies around the world and compare their growth with those experienced by Sudan and Zimbabwe in the recent years. This will help in finding out the attractive factors favouring FDI. Analyse some of the recent initiatives undertaken by the governments of Sudan and Zimbabwe toward fastening the pace of developments and the kind of impediments faced by them in their endeavour. Methodology The method of exploring a subject depends upon a number of factors like the impact of research on the general population, on industry, on environment or on the researcher. Though, this paper is being taken up as part of an academic exercise, but if carried out in a truthful manner, such a study will surely help in enriching the information and database about the investment strategies in general and their impact on Sudan and Zimbabwe in particular. Any discussion of methodology involves a debate over the pros and cons of quantitative analysis versus qualitative analysis. Both types of analysis require data and facts and figures, which can be gathered either through primary sources or secondary sources. This study intends to find out recent trends in the FDI strategies and how useful such investments have proved for the overall economy of the country. In order to arrive at a convincing argument we need to study and analyse the journey of globalisation and how this trend has affected the economic conditions around the world. This would be done with the help of a comprehensive literature review by sifting through some of the research papers, articles and news items from reputed agencies, newspapers and online database of reputed organisations. In addition, we need to analyse the political, economic, social, technological and environmental factors prevailing in Sudan and Zimbabwe and how these nations have been affected by the conflicts over a period of time. To this end, the database of reputed internationals organisations like UN, IMF, EU etc. would prove to be quite helpful. An attempt would also be made to solicit such information from the local media, government agencies and other reputed organisations in these countries. Therefore, use of reliable secondary sources would yield the necessary information about the path taken by the economic liberalisation polices over the years. Moreover, use of secondary research allows for the analysis of a broad range of topics that can be thoroughly investigated and has proven to be credible. The research used in this discussion comes from several sources including books, government documents, reputed websites and scholarly journals. The research also relies upon documentary evidences. This type of research involves systematic and objective location, evaluation, and synthesis of the evidence in order to establish facts and draw conclusions concerning different sets of events. In addition primary data will also be collected from the users, service providers and the policy makers. Some of the steps involved in the research are; Studying the history of globalisation over the years. How Sudan and Zimbabwe have been following the latest trends from around the world Analyse the functioning and implementation of some of the latest initiatives by the governments of Sudan and Zimbabwe towards strengthening the economic conditions of their countries Carry out a comprehensive look at the investors, the business community and the consumers in Sudan and Zimbabwe and how their living standards, individualism etc are affected by the economic initiatives Gathering primary data about the economic indicators like GDP, inflation, stock exchanges, fiscal indicators, trade balance, exchange rates, debts etc. through the authentic government sources Gathering primary data about people's involvement in the economic initiatives undertaken by the respective governments. This will be done with the help of questionnaire/ surveys Correlating the available information and analysing it with the help of tools like SPSS or MS-Excel to arrive at a deterministic conclusion. Data Collection Secondary Sources: Such data can be collected from the existing literature, research reports, leaflets, information brochure etc. Primary Sources: Such data can be collected by interacting with the government officials, investors, consumers, management, and other stakeholders. By analysing the working of the economic system also we can gather first hand data. Preliminary Literature Review The proponents of Liberalization and globalization claim that globalisation has opened up newer vistas of trade and business all around the globe. It is said that opening up of economies has now tilted the balance in favour of market forces, which is helping the consumer by way of providing quality at reasonable prices. As a result of globalisation market forces have started the policies with the role of respective governments becoming limited in determining the nature of import-export policies; investment policies etc. In a number of instances the MNCs have started dictating the policies to the governments, which often puts governments in a piquant situation. But on the other hand we have the example of China, India, Indonesia, Malaysia, UAE etc. which have immensely benefitted from the investments from abroad. In fact, having realised the benefits of FDI, China is now strengthening its ties and undertaking developmental projects in as far as the African region. In the recent past African region's exports to China grew by more than 40 percent while imports from China grew by over 35 percent. These figures are significantly higher than the growth in the world average trade rate of 14 percent and commodities prices of 18 percent. Chinese FDI in the African region has also grown sharply in recent years (Wang and Bio-Tchan, 2008). As of now, the world is in the midst of an economic recession and nobody is in a position to forecast about what the future shape of the economic condition. This is bound to affect the FDI climate as well. Another major factor is the fluctuations in oil prices. Sudan is an oil producer and exporter while Zimbabwe is depending on oil imports. Rising prices of oil are also responsible for creating an imbalance in the economy, which in turn impacts the investment climate. International bodies like United Nations (UN) and World Trade Organisation (WTO) have been trying to implement a code of conduct for business practices, which helps in confidence building measures and finding some sort of uniformity in the investment climate. Such organisations play a crucial role in resolving conflicts as well, and they have been playing important roles in Sudan and Zimbabwe for quite some time. Time Scale Efforts would be made to complete the different modules of the project leading to the completion of the project as per the following timeline (Note-These are completion dates). Submission of Proposal: Oct 26, 2009 Interaction with the Tutor: Oct 28, 2009 Inclusion of suggestions by the tutor Oct 30, 2009 Preparation of questionnaire: Nov 15, 2009 Data gathering, Lit Review etc Nov 22, 2009 Compiling the Modules Nov 30, 2009 Review of all details and requirements Dec 1, 2009 Submission of the Project Dec 2, 2009 References: 1. EIU (2009). Country Report - Zimbabwe. October 2009. Economist Intelligence Unit, London. 2. EIU (2009a). Country Report - Sudan. October 2009. Economist Intelligence Unit, London. 3. Hartungi, Rusdy (2006). Could developing countries take the benefit of globalisation International Journal of Social Economics. Vol. 33 No. 11. Emerald Group. 4. Wang, Jian-Ye and Bio-Tchan, Abdoulaye (2008).' Africa's Burgeoning Ties. 'Finance & Development' March 2008. 5. WEF (2009). 'The Global Competitiveness Report 2009-2010'. World Economic Forum. Available online at http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm (Oct 23, 2009) Read More
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