ECONOMICS - INVESTMENT

Foreign Direct Investment

Introduction4

Why Foreign Direct Investment4

Strong Trade Relations5

Importance of FDI5

Considerations for Host Country6

Adverse Balance of Payments6

Social Context of FDI6

Efficiency seeking7

Emergence of China as a Trade Power in Africa7

Investment Trends8

Emerging as a Leading Asian Nation in Africa9

Energy Resources of Africa9

Why Trade in Africa10

Developing the Relations with African Governments10

Role of 2008 Financial Crisis11

Foreign Direct Investment by China in Africa11

Concerns and Issues12

Lack of Rules and Governance13

Foreign Direct Investment A Success?13

Lack of transparency14

Problems for Africa15

Importance of Africa as a Trade Destination15

Playing a Positive Role in Africa16

Conclusion17

Appendix20

Appendix 120

Appendix 221

Appendix 322

Foreign Direct Investment

Introduction

Why Foreign Direct Investment

There are many objectives for FDI. The basic idea is not only to get the maximum return on equity but there are some other considerations as well that are needed to be looked at. Resource seeking is one of the primary objectives of FDI (Zafar, 2007, p.130). The basic idea is to make sure that some sort of consistency can be gained in the resources in which the country is lacking. Most of the times, such investments are being done keeping in mind the energy needs of the investing company as they have to make sure that some of the resources can be found at the lower cost. Another possible objective of FDI is that when firms are growing stronger in the parent's country, they want to capture the markets of the offshore industries; the idea is to make sure that the market share of the firms that are the part of the parents company can be increased with the help of the FDI. They might have some sales target in mind that they want to achieve in the near future.

Strong Trade Relations

FDI is a safer bet when a country has strong trade ties with the country in which they are investing. When a country as developed good trade relationships, then a good way to maximize this advantage in that country is to go for investing directly in that country. While exports are always needed to be looked at, as there are high logistics and transportation costs as well as trade barriers as more and more economies are going for protectionism.

Importance of FDI

It has been seen that FDI is more or less encouraged in the foreign countries as it brings much needed revenue to the domestic country. Even some of the franchising and the licensing agreements are not favorable when compared to FDI as FDI provides more strategic control and the level of operations can be evaluated and looked into when firm feels that there is a need for overhaul in the structure (Zafar, 2007, p.130). Another thing that has been seen is that some of the capabilities of the parent company are not adequate for the domestic country. The biggest advantage that it brings on to the table is that it helps a firm to keep an eye on the completion they are bound to face in the foreign country.

Considerations for Host Country

There are some considerations for the host country that is opening its doors ...