Unit 4 GB502 week 4 response
Dane Dougherty
YesterdayNov 8 at 2:42pm
“FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy, including reinvested earnings and intra-company loans, net of repatriation of capital and repayment of loans” (UN.org, 2021).
Sub-Saharan Africa, previously, had been seen by many as having a business environment that was hostile and hazardous. This was a view shared by many considering the regions poor infrastructure, troubling bureaucracies, concentration of corruption, and weak legal processes. The lacking in the mentioned areas can often slow or stop economic development and growth as well as stifle FDI that is needed to aid the domestic investments (Adhikary, 2011). However, in recent years data of both anecdotal and empirical variations have shown a much more positive pairing between FDI and SSA. This is mainly due to the increase in the amount and intensity of policy reforms directly intended to enhance FDI in the region (Bhavan & Zhong, 2011).
Multiple studies show that there are a multitude of factors that contribute to attracting FDI. Overall, most agree that investment promotion management, transparency and corruption within the government, market size, knowledge-based economies that focus on innovation, GDP, inflation, and exchange rate were the biggest determinants in FDI within the SSA region (Yusuf, 2017). Each of these factors is not difficult to explain individually, clearly a foreign entity would want to invest within a country with a strong GDP as well as a highly transparent government with low levels of corruption. Additionally, investing in a market that has a size that is conducive to growth is economically sound as well as low inflation levels.
Research shows that the top five FDI inflow countries in SSA are Kenya, Ghana, Rwanda, Mauritius, and Botswana in that order. Kenya is currently boasting the fastest growing economy in not just SSA but all of Africa as well as the third fastest in the world. It has also become a bit of a transportation hub within the region. These factors joined with their young, educated, and English speaking workforce is making it a destination for multinational corporations (Nomadcapitalist.com, 2021). Ghana, although not as fast growing as Kenya, is one of the most boasts a stable government and is expected increase its capital growth by roughly thirty percent in the next decade. Additionally, it is a free market economy and enables foreign property ownership coupled with amenable real estate prices. Rwanda is still behind the aforementioned countries in workforce and market size but makes up for that in their investment in technology and infrastructure. Mauritius, although smaller and geographically separated from the rest of SSA, is sought after for investment due to their consistent democratic and economic freedom. According to the World Bank, the country ranks in the top twenty for doing business. The country continues to be a growing financial services hub in addition to allowing foreigners to own and develop property. Botswana rests on a nine percent annual growth in GDP since 1966 and has development much more quickly than experts predicted. The country also flaunts the title of having the lowest corruption on the continent in addition to one of the freest economies. Traditionally a country that relied on its rich mineral resources, as their economy becomes more diverse due to their healthy financial reserves opportunities for growth will arise (Nomadcapitalist.com, 2021).
As a consultant, I would urge an entity to look for a company with a free market economy that holds contempt for corruption while seeking more and more transparency within their bureaucracy. I would also encourage said entity to look for a country in the region that is looking to make a transition from one industry to another, and if possible, a country that is not overly invested in. In my opinion, if a country is overly invested in one enterprise, competition will be intense. Should that country seek to make a transition, the over investment in that enterprise could dry up leaving an entity without long term promise. I would advise a foreign investor to seek opportunities and investment that are on the rise rather than ones securely established at this time.
Foreign Direct Investment Inflows-SSA- 2000-2019
GDP-Kenya
Foreign Direct Investment Inflows-Kenya
Adhikary, B. K. (2011). FDI, trade openness, capital formation, and economic growth in Bangladesh: A linkage analysis. International Journal of Business and Management, 6(1), 16–28.
Bhavan, T., Xu, C., & Zhong, C. (2011). Determinants and growth effect of FDI in south Asian economies: Evidence from a panel data analysis. International Business Research, 10(1), 23–30.
Yusuf, M. A. (2017). Foreign Direct Investment Inflow Performance: Nigeria Case. Western Reserve University 12/7/2017.
UN.org. 2021. “Foreign Direct Investment Inflow.” United Nations. Last Modified 1 November 2021. Accessed 8 November 2021. https://www.un.org/esa/sustdev/natlinfo/indicators/methodology_sheets/global_econ_partnership/fdi.pdf (Links to an external site.)
NomadCapitalist.com. 2021. “The Top Five African Countries to Invest in for High Yields.” Accessed 8 November 2021. https://nomadcapitalist.com/finance/investing/african-countries-to-invest-in/#Botswana
YesterdayNov 8 at 2:42pm
“FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy, including reinvested earnings and intra-company loans, net of repatriation of capital and repayment of loans” (UN.org, 2021).
Sub-Saharan Africa, previously, had been seen by many as having a business environment that was hostile and hazardous. This was a view shared by many considering the regions poor infrastructure, troubling bureaucracies, concentration of corruption, and weak legal processes. The lacking in the mentioned areas can often slow or stop economic development and growth as well as stifle FDI that is needed to aid the domestic investments (Adhikary, 2011). However, in recent years data of both anecdotal and empirical variations have shown a much more positive pairing between FDI and SSA. This is mainly due to the increase in the amount and intensity of policy reforms directly intended to enhance FDI in the region (Bhavan & Zhong, 2011).
Multiple studies show that there are a multitude of factors that contribute to attracting FDI. Overall, most agree that investment promotion management, transparency and corruption within the government, market size, knowledge-based economies that focus on innovation, GDP, inflation, and exchange rate were the biggest determinants in FDI within the SSA region (Yusuf, 2017). Each of these factors is not difficult to explain individually, clearly a foreign entity would want to invest within a country with a strong GDP as well as a highly transparent government with low levels of corruption. Additionally, investing in a market that has a size that is conducive to growth is economically sound as well as low inflation levels.
Research shows that the top five FDI inflow countries in SSA are Kenya, Ghana, Rwanda, Mauritius, and Botswana in that order. Kenya is currently boasting the fastest growing economy in not just SSA but all of Africa as well as the third fastest in the world. It has also become a bit of a transportation hub within the region. These factors joined with their young, educated, and English speaking workforce is making it a destination for multinational corporations (Nomadcapitalist.com, 2021). Ghana, although not as fast growing as Kenya, is one of the most boasts a stable government and is expected increase its capital growth by roughly thirty percent in the next decade. Additionally, it is a free market economy and enables foreign property ownership coupled with amenable real estate prices. Rwanda is still behind the aforementioned countries in workforce and market size but makes up for that in their investment in technology and infrastructure. Mauritius, although smaller and geographically separated from the rest of SSA, is sought after for investment due to their consistent democratic and economic freedom. According to the World Bank, the country ranks in the top twenty for doing business. The country continues to be a growing financial services hub in addition to allowing foreigners to own and develop property. Botswana rests on a nine percent annual growth in GDP since 1966 and has development much more quickly than experts predicted. The country also flaunts the title of having the lowest corruption on the continent in addition to one of the freest economies. Traditionally a country that relied on its rich mineral resources, as their economy becomes more diverse due to their healthy financial reserves opportunities for growth will arise (Nomadcapitalist.com, 2021).
As a consultant, I would urge an entity to look for a company with a free market economy that holds contempt for corruption while seeking more and more transparency within their bureaucracy. I would also encourage said entity to look for a country in the region that is looking to make a transition from one industry to another, and if possible, a country that is not overly invested in. In my opinion, if a country is overly invested in one enterprise, competition will be intense. Should that country seek to make a transition, the over investment in that enterprise could dry up leaving an entity without long term promise. I would advise a foreign investor to seek opportunities and investment that are on the rise rather than ones securely established at this time.
Foreign Direct Investment Inflows-SSA- 2000-2019
GDP-Kenya
Foreign Direct Investment Inflows-Kenya
Adhikary, B. K. (2011). FDI, trade openness, capital formation, and economic growth in Bangladesh: A linkage analysis. International Journal of Business and Management, 6(1), 16–28.
Bhavan, T., Xu, C., & Zhong, C. (2011). Determinants and growth effect of FDI in south Asian economies: Evidence from a panel data analysis. International Business Research, 10(1), 23–30.
Yusuf, M. A. (2017). Foreign Direct Investment Inflow Performance: Nigeria Case. Western Reserve University 12/7/2017.
UN.org. 2021. “Foreign Direct Investment Inflow.” United Nations. Last Modified 1 November 2021. Accessed 8 November 2021. https://www.un.org/esa/sustdev/natlinfo/indicators/methodology_sheets/global_econ_partnership/fdi.pdf (Links to an external site.)
NomadCapitalist.com. 2021. “The Top Five African Countries to Invest in for High Yields.” Accessed 8 November 2021. https://nomadcapitalist.com/finance/investing/african-countries-to-invest-in/#Botswana
10:08amNov 9 at 10:08am
A foreign direct investment (FDI) inflow is a purchase of an interest in a company or an investor located outside its borders. (Scott, 2021) This might be done to improve a company's footprint, developing into the international market and acquiring a source of materials. The reason for the importance of FDI into Africa is it helps the countries within the continent to improve and develop.
The top five FDI inflow SSA countries are Nigeria, South Africa, Mauritius, Ethiopia and Kenya. (Varndell, 2021) South Africa is an up and coming country in the economic surge. They are doing well at becoming a country that does deals with other countries, giving them a good market for products moving out of the country and gaining good profit by doing so. Due to the country being a country on the rise economically it can be cheaper to do business with them in comparison to other countries. (Signé, 2021)
Mauritius is ranked 13 out of 190 countries for the world bank ease of doing business from a 202 report. Mauritius has implemented many changes within the country over the years to allow the country to keep up to date with the pace of global change. (PWC, 2021) The country has proved to be a growing economy that has seen great improvements with social equality and poverty reduction. The country is known as upper middle income, and in the next few years it is looking to grow to become a high income country. (Trade Easy, 2021)
In Nigeria growth in the economy has improved prior to COVID-19. They found a dip in their economy during the prime of the virus, as did most other countries, but now they are on the up again. The country's socio-economic status has been increasing tremendously over the past couple years. The country is highly based upon the petroleum industry. Oil price increases from 1973 produced rapid economic growth in transportation, construction, manufacturing and government services. (Britannica, 2021) FDI in Nigeria continues to be led by the oil and gas sector.
Ethiopia is the second most populous country in Africa and has an economy which is growing thick and fast. They are a country that produces a lot of products that they are able to export. This includes coffee, beans, oil seeds and gold. Other than that Ethiopia's main source of income is from agriculture, a good thing about the climate in Ethiopia is that it is usually perfect for crops to grow and blossom. (Britannica, 2021)
Lastly, Kenya is a popular location for investors that are looking to invest in east Africa. Kenya's capital Nairobi has become a populous place for the country where here there are a large number of citizens who speak very good English, making it a good place to do foreign business in. As well as this, it is a good place to do business for the following reasons; it is a market based economy, it has a young population, has a comfortable and welcoming business environment and it has a strong relationship with the United States. (International Trade 2021)
As a recommendation to maintain growth economically I believe that it is important for the government to provide money for certain aspects of the country in question. For example, by putting money into infrastructure it can help the society as a whole to thrive. By improving infrastructure it can create buildings that can be used for companies. Also, part of improving infrastructure could be improving roads. This can be helpful for business because it can help imports and exports to be moved through the country quicker. Lastly, the increase of infrastructure can provide more jobs, which can help with the issue of unemployment. Another point worth mentioning is if the government is having a hard time improving the economy with a single approach and they don’t see any success, it can be very important to try to resolve the problem with another plan. It is always good to have a plan B in place.
References
Britannica. (2021). Economy of Ethiopia. Encyclopædia Britannica. Retrieved November 8, 2021, from https://www.britannica.com/place/Ethiopia/Economy.
Britannica . (2021). Economy of nigeria. Encyclopædia Britannica. Retrieved November 8, 2021, from https://www.britannica.com/place/Nigeria/Economy.
International Trade. (2021). Kenya - market overview. International Trade Administration | Trade.gov. Retrieved November 8, 2021, from https://www.trade.gov/knowledge-product/kenya-market-overview.
PWC. (2021). Doing business mauritius. PwC. Retrieved November 8, 2021, from https://www.pwc.com/mu/en/publications/doing-business-mauritius.html.
Scott, G. (2021, November 3). Foreign Direct Investment (FDI). Investopedia. Retrieved November 8, 2021, from https://www.investopedia.com/terms/f/fdi.asp.
Signé, L. (2021, July 29). US trade and investment in Africa. Brookings. Retrieved November 8, 2021, from https://www.brookings.edu/testimonies/us-trade-and-investment-in-africa/.
Trade Easy. (2021). Mauritius: Economic outline. Economic Outline of Mauritius - Mauritius Trade Easy - Expanding markets and Facilitating compliance. Retrieved November 8, 2021, from https://www.mauritiustrade.mu/en/trading-with-mauritius/mauritius-economics-outline.