UNCTAD report on FDI
Wednesday, 25 July 2007
THE least developed countries (LDCs) report 2007 of the United Nations Conference on Trade and Development (UNCTAD) has virtually dismissed the view that foreign direct investment (FDI) helps a recipient LDC in diverse positive ways including rapid industrialisation. The report, released in Dhaka the other day, says FDI in this country is presently concentrated mainly in telecommunications, banking service and oil and gas exploration. It also says FDI here, as in other LDCs, neither contributes to any major technology transfer nor generates significant job opportunities, rather it makes separate enclaves in the economy. As if to lend credence to the said observations, a report published in some Dhaka newspapers the next day, quoting a white paper of Japan's Ministry of Economy, Trade and Industry said 74 per cent of the US FDI and 76 per cent of the European Union's FDI in 2004 were in the service sector. Japan's FDI in the sector in 2006 was 35 per cent of its total foreign investment.
Beside Japan, the US and the European Union (EU) countries are the major FDI sources. When they concentrate their FDI predominantly in the service sector, there is hardly enough scope for the FDI to become a major vehicle of industrialisation, significant employment creation and technology and management skills transfer to any recipient country. Under such circumstances, it is better to acknowledge it by all concerned before it is too late and then to facilitate and depend more on the local entrepreneurs, resources and expertise for expansion of the industrial base of the country. The expansion of the service sector usually succeeds industrial development unless tourism-for historical reasons, remarkable contemporary achievements or entertainment -- is a thriving business. Apparently, whatever little FDI has come in the service sector of this country was attracted by economic development in other spheres.
Renowned hospitals drawing foreign patients and excellent seats of higher learning attracting foreign students, though fall within the category of service sector, are no doubt as good as industries. These bring in wealth continuously, generate employment opportunities and enhance the purchasing power of the locals. Oil and gas exploration, aimed at extraction of non-renewable wealth, by foreigners, is basically a temporary economic activity, which comes to halt when the oil and gas wells are exhausted and dry. However, it may make significant contribution to the transformation of country if the non-renewable wealth is put to proper and optimum use. Is this country doing so? But other service sector activities operating within the boundary of a country and relying exclusively on the purchasing power of the locals may enhance the frequency of money use but they do not generate real wealth, although these may have some contributions to saving of foreign exchange.
The particular UNCTAD report says the role of FDI in this economy has been limited due partly to the type of integration of the trade negotiating capacity. This is a view that may provoke one to ask: When did or could beggars become choosers? The foreign investors who prefer to plough their money in whatever sector or sectors promise them maximum returns, in fact decide the sectoral composition of FDI. They primarily target the local market and do not usually choose a country as an export base. Neither do they establish basic industries in a country there unless drawn by a non-renewable wealth or an extraordinary advantage. Bangladesh's FDI policy, which is very liberal but has produced limited response from foreign investors, also testifies to it. The country should, therefore, depend more on local entrepreneurs, nourish and facilitate them to unlock the full potentials of its industrialisation.
Beside Japan, the US and the European Union (EU) countries are the major FDI sources. When they concentrate their FDI predominantly in the service sector, there is hardly enough scope for the FDI to become a major vehicle of industrialisation, significant employment creation and technology and management skills transfer to any recipient country. Under such circumstances, it is better to acknowledge it by all concerned before it is too late and then to facilitate and depend more on the local entrepreneurs, resources and expertise for expansion of the industrial base of the country. The expansion of the service sector usually succeeds industrial development unless tourism-for historical reasons, remarkable contemporary achievements or entertainment -- is a thriving business. Apparently, whatever little FDI has come in the service sector of this country was attracted by economic development in other spheres.
Renowned hospitals drawing foreign patients and excellent seats of higher learning attracting foreign students, though fall within the category of service sector, are no doubt as good as industries. These bring in wealth continuously, generate employment opportunities and enhance the purchasing power of the locals. Oil and gas exploration, aimed at extraction of non-renewable wealth, by foreigners, is basically a temporary economic activity, which comes to halt when the oil and gas wells are exhausted and dry. However, it may make significant contribution to the transformation of country if the non-renewable wealth is put to proper and optimum use. Is this country doing so? But other service sector activities operating within the boundary of a country and relying exclusively on the purchasing power of the locals may enhance the frequency of money use but they do not generate real wealth, although these may have some contributions to saving of foreign exchange.
The particular UNCTAD report says the role of FDI in this economy has been limited due partly to the type of integration of the trade negotiating capacity. This is a view that may provoke one to ask: When did or could beggars become choosers? The foreign investors who prefer to plough their money in whatever sector or sectors promise them maximum returns, in fact decide the sectoral composition of FDI. They primarily target the local market and do not usually choose a country as an export base. Neither do they establish basic industries in a country there unless drawn by a non-renewable wealth or an extraordinary advantage. Bangladesh's FDI policy, which is very liberal but has produced limited response from foreign investors, also testifies to it. The country should, therefore, depend more on local entrepreneurs, nourish and facilitate them to unlock the full potentials of its industrialisation.