A FOREIGN DIRECT INVESTMENT

All over the world, governments of sovereign nations strive to attain economic prosperity. This is achieved through a vibrant economy that engages her workforce, produces what it has comparative advantage and export to other nations of the world. The level of economic activities often measured by the GDP remains a critical indicator. Globalisation has ensured that the world is a big market place and today, labour and capital are largely and freely mobile. Investment inflow can be direct or otherwise but it is largely desirable that investment inflows are direct as it signals higher confidence in the economy being invested in and eliminates shock associated with hot money.

A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. FDI was necessary to boost economic growth, as government alone cannot develop every sector of the economy without support from local and foreign investors. FDI is often preferred to exporting and that is because while exports merely involve moving goods from one country to another, FDI actually involves an investor establishing foreign business operations or acquiring foreign business assets. This often includes establishing ownership or controlling interest in a foreign country (for instance an American business establishing a physical business presence in Nigeria). Many emerging economies like China, Brazil, India and Vietnam have built their growth on FDI flows. The idea is to attract “quality foreign direct investment” that links foreign investors into the local host country’s economy.

The International Growth Centre (a British-funded research center that aims to promote sustainable growth in developing countries) characterises “quality” here as contributing to

1) decent and value-adding jobs and enhancing the skill base of host economies;

2) transfer of technology, knowledge and know-how; and

3) boosting competitiveness of domestic firms and enabling their access to markets.

Foreign Direct Investments remain a major source of industrial growth and development as well as a major source of technology transfer for developing economies in particular. For these benefits and more, such countries provide policy frameworks that must of necessity encourage inflow of direct investments by foreign investors. There are several ways that the government can drive in and sustain FDIs. For the government to attract and retain investment, it must develop investment-friendly policies and ensure consistency. Investors are dispassionate and are driven by gains.

There are various factors foreign investors consider before making an investment decision in a country. While investment risks are a given, investors desire clarity of economic policies in the nations they invest in. It is by no sheer coincidence that performing economies have huge foreign investment in their portfolio. FDI is what a country generally needs to grow because FDIs complement domestic investments. All the government needs do is to make the country business conducive for foreign investors to bring in more capital for investment.

To boost the economy, raise GDP through improved level of economic activities, attracting and retaining investment inflow must remain a key performance indicator for the managers of our economy. While the government remains the biggest stakeholder in the economy, it must boost confidence and continually ensure that the economy remains attractive for investment inflow.