Foreign Direct Investment Term Paper

Pages: 12 (3956 words)  ·  Bibliography Sources: ≈ 7  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

SAMPLE EXCERPT . . .
The government can institute friendly policies, but it is the individual investor that sets the pace and weighs for themselves the risks and benefits that are used to make their recommendations and/or purchases.

Businesses must not only see profitability in the short-term; they must also see the possibility of long-term growth and expansion. By this measure, Pakistan market expansion has been small (Ahmed, 2002). Corporate growth has been low. These are not sound conditions to ensure that the endeavor will be sustainable and profitable in the long run. If a foreign investor already has a facility in this country, they may wish to expand it. However it is unlikely that they well go to the expense of funding a large project. This may be bad news in the eyes of the Pakistani that were counting on the growth that foreign direct investing has to offer.

There are other key roadblocks to making Pakistan an attractive proposition to foreign investors. One of these factors is the lack of a sufficient infrastructure to support these new businesses. Pakistan is attempting to establish export-processing zones to help facilitate a greater amount of export trade. This would make the process more orderly. They cannot support large-scale manufacturers at this time as there is often an infrequent and inadequate supply.

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Water is also in short supply. Water must be trucked in, and this necessary life-giving resource is subject to strikes, and is expensive. There is the danger that a small radical group could use water as a means of control. Roads are small or non-existent. An adequate system of roads is essential in the ability to ship large amounts of goods. There is also a 15% sales tax and a high road tax on vehicles. Insurance cost is high and there is even a tax on that. The cost of doing business in Pakistan in high (Ahmed, 2002).

Term Paper on Foreign Direct Investment and the Assignment

Traffic police are corrupt and driving in Pakistan resembles mass mayhem. There are many accidents. Investors in Pakistan must take extra measures to protect their workers and there is a high incidence of terrorism and kidnappings (Ahmed, 2002). In addition, the Pakistani monetary system is heavily tied to Islamic banking that is known to have a high degree of instability (Ahmed, 2002). Pakistan is plagued by high interest rates, which cuts into company profits. The labor force in Pakistan is cheap, but uneducated and typically has a low productivity. There are many holidays and holy days, which add up to lost time and money (Ahmed, 2002).

Pakistan is a good example of a country that is not attractive to foreign investments. They wish to make themselves more attractive to foreign investors, but they have a long way to go before Pakistan will be a highly desirable place to relocate.

They are far from realizing their goals and must first start with the basics of life such as water and transportation. Pakistan will have to make many internal adjustments in order to attract the foreign investors that they desire. In the case of Pakistan, the threat of terrorist activities is dwarfed by the economic and infrastructure woes that plague the country.

Foreign investment in Pakistan is growing at a slow rate. It totaled $287.4 million USD in March of 2002, which was a 24% increase over the same period the previous year (Ahmed, 2002). Most of this has been from the United States who contributed $164 million of these dollars. It would seem that foreign investors are not overly enthusiastic in investing in Pakistan, not to mention their frequent threats of war with its close neighbor India.

Let us look at another example, Indonesia. This country has previously been considered relatively safe, as compared to the Middle East. They have a thriving travel and tourism industry highlighting the lush forests and rich cultural history. Recent bombings in Bali had a drastic effect on the tourism trade to this small island nation. The Bali terrorist attacks did have an immediate and lasting effect on the travel and tourism sector in Indonesia, This sector has been a dominant force in the Indonesian economy and a downturn in this sector has an impact on the economy of the country as a whole (Finnegan, 2002).

Although the travel and tourism industry was thriving, it was not largely due to foreign investment. Prior to the Bali bombing foreign investment was near zero. Therefore foreign investors are not at stake. Indonesia has had a negative image due to political turmoil for many years. China dominates the interest for investment in Asia and many do not even consider other locations (Finnegan, 2002). Indonesia has had a slower recovery from economic turmoil than other Southeast Asian countries.

The Bali bombings had great impacts on the tourism industry, hotels that are usually packed are down to single digit occupancies. Bali hopes to recover somewhat by mid-year of 2003. Bali is a case where there is a massive tourism industry, but there is not a high degree of foreign investment. However, the effects of terrorism have had a heavy impact on the local economy of the country. These effects are expected to be long-term and will stain the image of Bali in the minds of tourists who many have previously considered Bali a nice place to vacation.

Bali and Pakistan have both experienced negative effects on their economy due to terrorism. These effects had heavy impacts, but different effects on the situations in the two different countries. In Pakistan, terrorism is a major deterrent in its ability of achieving its goals of attracting larger amounts of foreign investment. Pakistan has many other internal problems that must be dealt with first, if they are to become more attractive to foreign investors. However in the end, they will have to deal with the terrorism issue. Even after all of the other issues are resolved, investors must still feel that their assets and people are safe.

The focus of Pakistan is to attract manufacturers as foreign investors. It is not expected to become a popular tourist attraction, but it is in close proximity to a wide array for natural resources including crude oil and gasoline. Pakistan has potential for development in the future, but it also has a long way to go. It is certain that terrorism and their ability to deal with it will play a key role in attracting foreign investors in the future.

Bali had a relatively independent economy, and even though the terrorism incidents there did not effect foreign investors it still had a negative impact on their economy and this is expected to take a long time to recover. Terrorism has a devastating effect on the local economy, but can also have an impact on the image of Bali in the minds of the tourist.

Among the many variables that one must consider in a decision to invest in a foreign country. Economic and political factors play into the equation. However, one of the single most important factors in the decision to relocate is first, personal safety and second, the safety of assets. Foreign investment takes a large degree of capital. Once the hotel or factory is built, an investor wants to be certain that it will not fall victim to a calamity resulting in a total loss. The risk of terrorism makes it difficult to guarantee the security of an investment, not to mention the investment in people. A high risk of terrorism can make an otherwise attractive investment prove too risky to undertake.

The world used to have certain areas that were associated with being subject to frequent terrorist attacks. One of these areas was the Middle East. The Middle East has some countries that are attractive in many aspects to the potential foreign investor, but the fear of terrorism makes them seem less attractive. No one wants to see their $100 million Dollar hotel go up in flames from a suicide bomber.

Just as there were certain areas where one expected a risk of terrorism, there were also areas that were perceived as safe. The United States had never been subject to terrorist attacks. September 11 changed the perception of safety. Now it seemed as if no where was immune from the threat of terrorism. The threat of terrorism has been demonstrated to be a major contributor in the decision to invest in a country. The effects of September changed the face of America and will be sure to have an effect on the desire of firms to relocate to the United States. Is will also have an impact on the desire of U.S. firms to locate abroad. Let us discuss these two scenarios.

The attacks of September 11, 2001 have caused many things to change. What used to be a happy go lucky society now has to be cautious. There are long lines at airports, and long lines at the border crossings to Mexico and Canada (Eichengreen, 2002). Americans must now be more security conscious. This new security consciousness[END OF PREVIEW] . . . READ MORE

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APA Style

Foreign Direct Investment.  (2002, December 1).  Retrieved June 15, 2021, from https://www.essaytown.com/subjects/paper/foreign-direct-investment/2877084

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"Foreign Direct Investment."  1 December 2002.  Web.  15 June 2021. <https://www.essaytown.com/subjects/paper/foreign-direct-investment/2877084>.

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"Foreign Direct Investment."  Essaytown.com.  December 1, 2002.  Accessed June 15, 2021.
https://www.essaytown.com/subjects/paper/foreign-direct-investment/2877084.