FDI IN LAND: A TWO EDGED SWORD

Land has been an important economic resource and its acquisition by foreign private investors has taken an unprecedented step due to a changed economic and political environment.The recent sales and leasing trend of land in developing countries eloquently testifies that lands scarcity is in competition between various land use interests.Increasing population growths, climate change and its related problems such as erosion, desertification, soil sealing and urbanisation are increasing the pressure on land and other natural resources. Again, rising demand for food and fodder as well as biomass for energy and industrial use in national and international markets has only worsened the pressure on agricultural land.

In this regard state actors and private investors from industrialised and emerging nations are using long term leases or purchase agreements to secure large parcels of agricultural land in developing countries  so as to grow food or energy plants for exports termed ´´land grabbing´´. Also the current financial crisis saw investors turn to land as alternatives for failing stock options. It is hoped that this rise in FDI in land will bridge the gap in decades of underinvestment in the agricultural sector of developing countries but the threats of home country´s food security and the vulnerability of the rural population even widen.The FAO had estimated that atleast 30 billion US dollars were needed in the agric sector to keep out hunger by 2015. Whether FDI in land brings the good or the bad is an institutional setting. Developing cooperation agencies, foreign government agencies, the IMF AND WB have all been active to come up with sound policies and ideas on how FDI in land should be directed, emphasising on sustainability and  accessibility in food supply in coming years. Improved land management and secure land rights in developing countries can reduce risks and contribute towards better utilisation of possible opportunities of  FDI.

Cambadia, Laos, Mali, Kenya, Madagascar, Ghana are among the countries experiencing this huge wave of land grabbing while Germany, Italy, France, US, UK, Saudi Arabia, China, Brazil are a few countries in the mad rush for land.The impacts of FDI in land could be both benefitial and negative to natives of the host country.

BENEFITIAL EFFECTS OF FDI IN LAND IN DC

  • Trade Effects: Economic growth is influenced by increasing total factor productivity and the efficient use of resources in the host country.FDI increases the capital stock thereby raising output level.The host country is integrated into the global economy as foreign trade flows is boosted and transnational distributional networks are created.This inturn allows host country to liberalise trade so as to benefit from FDI.
  • Human Capital Contribution: Jobs are created reducing unemployment, higher wages due to greater productivity through technology and modern management skills which allows them to compete in the international market, technology transfer through affiliates directly benefits and and increase competition in host country, the presence of multinational firms could stir government policy to improve on education and increase the use of technology and computer sciences in schools.
  • Spill over Effects: Multinational enteprises usually apply higher technology especially ´´clean´´ which contributes to productivity. This technological methods are transfered and benefited by host country. Again Multinationals provide assistance, trainings and relevant information to improve quality of suppliers products.Local firms may improve productivity by gaining access to modern, improved or cheaper intermediate inputs produced by multinationals in upstream sectors, locals can be sub contracted to provide sales of inputs thus gaining exposure to foreign markets, research and developement initiatives of local companies are encouraged by FDI.
  • Management and Government Practices: Changes in management and corporate governance as local firms are acquired by FDI leading to modern policies, information disclosure, accounting system.This improves the business environment and corporate efficiency.Also FDI encourages some transparency within government of host country in order to attract more investments.
  • Competition: FDI puts pressure on local firms leading to competition and quality improvements, efficiency and standards.

NEGATIVE EFFECTS OF FDI

-Profit Repatriation: Multinations send back home huge profits which is not reinvested in the host country.

-Dual Economy: a developed sector mostly owned by foreigners and an agricultural or rural sector by locals can develope due to FDI.The developed sector is capital intensive while the other is labor intensive like in oil rich countries known as the ´´dutch disease´´.

-Environmental concerns: less strict environmental laws in developing countries places them at risk of escalating environmental problems as most of FDI is concernbtrated in natural resource sector.Over exploitation could also diminish quickly the resource leading to scarcity in the future.

-Balance of Payment Effcet: most multinationals buy huge machinery from their suppliers in their respective countries.This causes the host countries to import more than it can export.This over dependence also constrains developement in host country.

-Socio political issues: FDI can raise cultural,political,social unrest through its imposition of certain values, advertisements and bill boards which me be considered deviant in host country.Again involvement of foreigners in domestic politics may cause outrage.

Sources

-German technical cooperation-development. 20. 3.1. Possible economic impacts of FDI in land on rural livelihoods. 21 … Assessment of FDI in land in four selected countries: Cambodia, Lao, Mali, Madagascar

-ukessays.com /essays/economics/negative-effects-of-fdi-in-host-countries-economics-essay.php

 

 

 

 

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