Foreign Direct Investment is a company or organisation having a direct investment in business operations in a foreign country.  It benefits both the firm making the investment, allowing them to expand their global footprint, open new markets and produce products in a more competitive arena.  It also benefits the country where the investment is made by providing jobs and creating new industries which service the company making the investment.  It can also potentially lead to a transfer of knowledge and skills into the new market, creating local industries and specialists. Additionally the extra capital and wealth which has been created and circulating around the economy more often than not will also lead to improvements in community standards as more infrastructure is developed.  Every one is a winner.

The only potential down-side relates to political risks, and some operational risks with regard to infrastructure and servicing.  These political risks arise, as well, when the government of the country where the FDI will occur, does not perceive international trade as a way to boost economic growth and productivity.  Some examples of this have been seen in African countries where capital can not be transferred out of the country to the parent.  More often than not, in these cases any money being returned on the investment is returned by way of licensing fees or loan repayments.  This also happened in Russia under the Communist regime.  FDI has also been limited in countries such as South America, where property rights are not upheld, meaning that the company who has invested it’s capital can not control it’s assets or it’s company.  Generally it prevents FDI except by the most ambitious with the most lucrative opportinities.

Obviously when governments put such limitations on Foreign companies, it marks the country as a poor site for investment and limits the amount of capital which cycles through the country.  It not only means that all the benefits of FDI are not realised, but also risks other countries restricting trade, either through quotas and restrictions or tariffs and taxes.

I learned about FDI in my Introductory Economics classes.  It’s a fair assumption that any one working in the business realm or who has ever learned anything about the economy and finance, would know it’s a good thing.

…Every one except our Federal Treasurer Wayne Swann.  Our buddy Wayne, for some reason, wants to restrict foreign investment.  I’m not sure if it’s total ignorance, misguided nationalism or pig-headed subscription to flawed socialist ideology.  But it’s disappointing to hear that the man who apparently will save our economy from inflation, actually knows nothing about the economy.  Even in his first few months, we’ve seen some misguided actions already – for example, Australia is THE ONLY COUNTRY IN THE WORLD INCREASING RATHER THAN DECREASING INTEREST RATES TO COMBAT INFLATION.  Whilst this worked for Keating, we also had almost no economic growth and unemployment of up to 10% (23% for youth unemployment I remember – mostly due to the fact that my school teachers and parents quoted it at me for the reason I needed to go to university).  Rudd and Swann have also launched an enquiry into the bleeding obvious, by investigating why fuel and grocery prices have risen so much in the last few years.  A rabid monkey who knew the first thing about supply, demand and was vaguely aware of the drought, hyper-inflation in the property market and China’s booming economy could easily explain the price rises, but apparently our PM and Treasurer can not.  But I digress.

Swann wants to allow countries like China to invest in Australia, provided that they do not actually want control of their assets or investment.  I fail to see why any foreign firm would then put money into our economy.  Without control of an investment a firm might as well flush their shareholders money down the toilet or spend it all on a Vegas gambling tour for their executives as the next company outing.  Heck, they could just give all their money to charity, at least that would help someone at some point.

So my congratulations to Wayne Swann.  If we’re lucky in four or eight years we’ll get some one in office who actually knows something about economics or competitive investment.  Or even better, perhaps our academics will do what the German academics had to do for the government when the people elected the Greens into a majority and actually teach Swann and Rudd a few of the basics.

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