FDI has been found to work differently depending on the level of development of the country. In developed countries, FDI mainly entails the inward flow of technology. In developing countries, however, FDI has a bad reputation of merely taking advantage of cheap labor and spurring exploitation raw resources in expenses of the local economies although a fistful of the developing countries credits their growth to FOREIGN DIRECT INVESTMENTS FDI. A recent data show that FDI has elevated income levels in the developing world more than any other intervention.
Characteristics of quality FDI
Not just any FDI is great for the country. Here are the features of quality FDI
Operating in an environmentally and socially responsible manner
Contributing to the provision of value-adding and decent jobs
Encouraging the transfer of knowledge and technology
Enhancing the expertise or skill base of the host economy
Boosting competitiveness of local enterprises and allowing them to access the market
To achieve this, the host country cannot just wait to see what the forces of the international market may bring. Rather, they’re required to create tailored policies that encourage foreign investors to invest in the domestic market.
What are the strategies for attracting FDI?
1. Allow FDI inflows by creating open markets
One of the best ways of making a country attractive to FDI is removing all trade and investment restrictions – often referred brought forth by protectionism – to create an open market. An open market is characterized by transparency, dependable conditions for every firm operating in the country whether domestic or foreign and includes protection of all intellectual property, relatively flexible labor market, ease of conducting business, and access to imports.
2. Create an IPA (Investment Promotion Agency)
A successful IPA acts as a link between the domestic economy and foreign investors. It serves two purposes: a) meeting the requirements demanded by the foreign investors as well as providing the investors with all information and data about the domestic economy and b) acting as a catalyst within the host nation and prompting it to build quality infrastructure and providing access to skilled laborers that may be needed to attract investors. Moreover, IPA should engage in after-investment care, follow-investment, and determining the satisfaction level of investors.
3. Build infrastructure
One of the things that appear on top of the foreign investor’s list is the availability of quality infrastructure because goods and labor need to be transported from place to lace. The availability of close-by transport systems such as ports and airports as well as the provision of reliable energy supply and adequately skilled workforce are essential when trying to attract FDI.
4. Refocus the contentious “Who is us?” concept and address all related concerns
When FDI kicks in, the answer to the “Who is us?” questions changes from “domestic companies” to “any firm that pays tax in this country”. This is to avoid appearing like a protectionist yet FDI hungry host that’s just interested in taking advantage of foreign investors and not protecting their interests.
FDI can work well for any country if it is rolled in a correct approach. Not just any FDI is great, quality FDI is more desirable. Such IPA interventions as building infrastructure and creating open markets attract foreign investors.
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