Foreign direct investment (FDI) has become the most important source of development finance. Foreign direct investment is said to be taking place when a foreign corporation buys at least a 10 percent shareholding in a domestic firm or undertakes a greenfield investment in a foreign country. Recognising that FDI can contribute to economic development, all governments want to attract it. The world market for FDI is highly competitive, and developing countries, in particular, seek such investments to accelerate their development efforts. Both developing and developed countries are competing for global FDI flows. The result is that FDI flows are concentrated in few developed countries. It becomes critical for economic development to developing countries to attract more FDI flows into their economies. FDI flows are basically the result of investment decisions taken by trans-national corporations in response to certain pull factors. Whether a TNC will undertake FDI in a foreign country or not depends on the existence of determinants that influence such a decision. The increase in global FDI flows is a result of firms decid ing to invest in foreign markets rather than to export to those markets. What makes FDI attractive is that, unlike portfolio investment, it is almost of permanent nature. FDI is also more desirable than loans and official development assistance (ODA) in that it does not create debt. For this and other reasons, countries are seeking to attract FDI flows. Various economic development theories have been advanced to explain the reasons firms undertake FDI rather than export to those foreign markets. These theories include theories that focus on internal organisation or the intending firm. These theories assume the imperfect market condition. Foreign firms will undertake FDI if they have superior oligopolistic advantages over the local firms. The Southern African Development Community (SADC) like other regions and countries is seeking to attract foreign direct investment. The present analysis of the performance of this region show that its share of global FDI flows is very small. The region is facing big challenges as a result of weaknesses in its individual member countries. South Africa is the best performing member in terms of attracting FDI flows and undertaking FDI in other regional countries. FDI inflows into the SADC region are predominantly goin g into resources. This evident when case of Angola and Democratic Republic of the Congo is analysed. It can be said that the FDI inflow into the region is predominantly resourceseeking. It can, however, also be said that some FDI is driven by the market-seeking motive. This is evident in the case of FDI in the food and beverages sector. It is important that the countries in the SADC region work hard to address those determinants that are critical to attracting more FDI. It is evident that some countries can improve their international image if they can address negative factors such as conflicts, crime and government apathy to disregard of the rule of law. Policies and strategies that are aimed at improving the image of the region need to be coordinated among member countries, if the region is to increase its share of global FDI. / Prof. A.E. Loots
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uj/uj:3091 |
| Date | 20 June 2008 |
| Source Sets | South African National ETD Portal |
| Detected Language | English |
| Type | Thesis |
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