FOREIGN DIRECT INVESTMENTS

PRO & CONS

Foreign direct investment is the direct investment into a business or sector by acompany or individual from another country, differing from portfolio investment,

which is a more indirect investment into another country's economyby means of financial instruments such as stocks and bonds.

There are various forms and levels of foreign direct investment,depending on the type of company or companies involved,

and the reasons for investment.

Buy a company in the target countrythrough merger or acquisition

Set up a new business Expand the operations of anexisting business

Other forms of direct foreign investment include the incorporation of a wholly owned subsidiary or company, the acquisitionof shares in an associated enterprise, or participation in an equity joint venture across international boundaries.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT

It can stimulate the economic development of the country in which the investment is made,creating both benefits for local industry and a more conducive environment for the investor.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT

It will usually create jobs and increase employment in the target country.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT

It will enable resource transfer, and other exchanges of knowledge wherebydifferent countries are given access to new skills and technologies.

ADVANTAGES OF FOREIGN DIRECT INVESTMENT

The equipment and facilities provided by the investor can increasethe productivity of the workforce in the target country.

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DISADVANTAGES OF FOREIGN DIRECT INVESTMENT

Foreign direct investment can sometimes hinder domestic investment, as it focusesresources elsewhere.

Occasionally as a result of foreign direct investment exchange rates will be affected, to theadvantage of one country and the detriment of the other.

Foreign direct investment may be capital-intensive from the investor's point of view, andtherefore sometimes high-risk or economically non-viable.

The rules governing foreign direct investment and exchange rates may negatively affect theinvesting country.

Investment in certain areas is banned in foreign markets, meaning that an invitingopportunity may be impossible to pursue.

CONCLUSIONS

Expanding your business abroad, buying into a foreign company or otherwise investinginto another country’s economy can be extremely financially rewarding, and may provide

your organisation with the boost it needs to jump to a new level of success.

However, direct foreign investment is also fraught with risks, and it is vital to investigateand assess the economic climate thoroughly before venturing into such an investment.

We live in an increasingly globalised economy, which means that foreign direct investmentis becoming a more and more accessible option. Potential foreign direct investors,

with the right expertise and planning, will find that the world is their oyster.

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