Competition for foreign direct investment and its implications for developing countries with special reference to Botswana

Kebalefetse, Batshedisi Pearl (2002-12)

Thesis (MBA)--Stellenbosch University, 2002.

Thesis

ENGLISH ABSTRACT: The study project was aimed at analysing the factors that account for the difference and intensity with regard to the attraction of FDI inflows by developing countries and the benefits brought about by this FDI. It is believed that economic growth can only be achieved where there are no barriers to trade. Trade liberalisation forms the central part of the structural adjustment programmes advocated by the international financial institutions, the World Bank and IMF. The theory of comparative advantage lies at the heart of trade. There is a strong belief that countries will benefit more when specialising in producing goods and services in which they are efficient, those that they can produce at lower costs than other countries. However, researchers like Madeley, (2000:50) argue that the benefits of free trade can only be realised if trade takes place between countries at equal levels of economic development. This is true when one takes into account the fact that developing countries are not well equipped to cope with more developed countries and when looking at the intensity of trade in both cases, With trade liberalisation and competitive global economy, the developing countries are forced to turn to multinationals because there is hope that through them they can benefit from global trade and be able to compete for the limited resources. It is only through the attraction of foreign direct investment or by influencing the location decisions of multinationals that countries can achieve sustainable economic growth. This is so because globalisation and trade liberalisation have concentrated the power of trade in the hands of the multinationals. Multinationals have advantages in global trade because they possess distinct / superior assets which enable them to compete well in the global market. These assets include efficient production processes and continuous process improvements, the ability to eliminate unnecessary process steps, they enjoy economies of scale because of mass production and standardisation, they possess managerial and marketing skills and they can obtain less expensive financial resources because of their credit worthiness. The use of advanced technology by multinationals gives them the power and advantage in the sense that they can achieve high levels of quality in terms of consistency in production and timeliness. Multinationals have built strong relationships with suppliers, banks and other organisations in different fields, world wide. It is, however, noted that developing countries continue to face problems and challenges with regard to the attraction and maintenance of foreign direct investment because these multinationals favour countries where they are sure that their investments will get sustainable future returns. It is, however, imperative that developing countries position themselves advantageously when competing for FDI. In light of this, some developing countries have opted to enhance their fitness and abilities through the promotion of regional integration and cooperation among themselves and neighbouring countries, for purposes of complementing each othe~'s weaknesses and working together towards achieving common goals. The factors which contribute to the attraction of foreign direct investment include: • Rigorous basic education system plus provision of appropriate education. • Size of the economy and the market. • Cost and quality of local inputs. • Governance, political stability and stable macroeconomic policy. • Infrastructure (telecommunication, roads and the internet). When analysing Botswana, it was noted that the country relies heavily on the mining sector as the major source of foreign direct investment and economic growth. The country needs to diversify the industrial base away from mining. The government needs to pay attention to the factors which deter FDI investment in Botswana.

AFRIKAANSE OPSOMMING: Die studieprojek het ten doel die ontleding van die faktore wat verantwoordelik is vir die verskil en intensiteit in die aanlok van invloeie van buitelandse direkte belegging (BDB) deur ontwikkelende lande en die voordele wat deur hierdie BDB teweeggebring word. Daar word beweer dat ekonomiese groei net bewerkstellig kan word wanneer handel nie belemmer word nie. Die liberalisering van handel maak die kern uit van die strukturele aanpassingsprogramme wat deur die internasionale finansiële instansies, die Wêreldbank en IMF, voorgestaan word. Die teorie van vergelykende voordeel is die kern van handel. Daar word geglo dat lande meer sal baat indien hulle spesialiseer in die produksie van goedere en dienste waarin hulle bedrewe is en wat hulle teen laer koste as ander lande kan produseer. Navorsers soos Madeley, (2000:50) beweer egter dat die voordele van vryhandel net verwesenlik kan word indien handel plaasvind tussen lande met dieselfde vlak van ekonomiese ontwikkeling. Dit is wel die geval wanneer 'n mens die feit in ag neem dat ontwikkelende lande nie goed toegerus is om met meer ontwikkelde lande mee te ding nie en wanneer 'n mens na die intensiteit van handel in albei gevalle kyk. Met die liberalisering van handel en mededingende wêreldekonomie word ontwikkelende lande genoop om hulle tot multinasionale maatskappye te wend in die hoop dat hulle sodoende voordeel kan trek uit internasionale handel en om die beperkte hulpbronne kan meeding. Slegs deur buitelandse direkte belegging te lok of deur die besluite oor die ligging van multinasionale maatskappye te beïnvloed kan lande volhoubare ekonomiese groei bewerkstellig. Dit is so omdat globalisering en die liberalisering van handel die handelsmag in die hande van die multinasionale maatskappye geplaas het. Multinasionale maatskappye geniet voordele in wêreldhandel omdat hulle bepaalde / superieure bates het wat hulle in staat stel om mededingend te wees in die wêreldmark. Hierdie bates sluit in doeltreffende produksieprosesse en deurlopende prosesverbeteringe, die vermoë om onnodige prosesstappe uit te skakel, die feit dat hulle skaalbesparings geniet danksy massaproduksie en standaardisering, bestuurs- en bemarkingsvaardighede besit, en goedkoper finansiële hulpbronne kan bekom danksy hul kredietwaardigheid. Multinasionale maatskappye se gebruik van gevordere tegnologie verleen aan hulle die mag en voordeel in dié opsig dat hulle hoë vlakke van gehalte in terme van konsekwentheid van produksie asook tydigheid kan bereik. Multinasionale maatskappye het sterk verhoudings met verskaffers, banke en ander organisasies op ander gebiede wêreldwyd opgebou. Ontwikkelende lande staan egter steeds voor probleme en uitdagings rakende die aanlok en behoud van buitelandse direkte belegging, aangesien hierdie multinasionale maatskappye ten gunste is van lande waar hulle seker is hulle beleggings volhoubare toekomstige opbrengste sal oplewer. Dit is egter noodsaaklik dat ontwikkelende lande hulself voordelig posisioneer wanneer hulle om BDB meeding. In die lig hiervan het sekere ontwikkelde land besluit om hul geskiktheid en· vermoë te verbeter deur die bevordering van gebiedsintegrasie en samewerking tussen hulle en buurlande met die doel om mekaar se swakhede aan te vul en saam te werk om gemeenskaplike doelwitte te bereik. Die faktore wat bydra tot die lok van buitelandse direkte belegging is onder meer: • 'n Streng basiese onderwysstelsel plus voorsiening vir behoorlike opvoeding. • Die grootte van die ekonomie en die mark. • Koste en gehalte van plaaslike insette. • Regering, politieke stabiliteit en stabiele makro-ekonomiese beleid. • Infrastruktuur (telekommunikasie, paaie en die internet). Met die ontleding van Botswana is daarop gelet dat die land baie afhanklik is van die mynbousektor as die belangrikste bron van buitelandse direkte belegging en ekonomiese groei. Die land moet die nywerheidsbasis weg van mynbou diversifiseer. Die regering moet aandag gee aan die faktore wat BDB in Botswana verhinder.

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