Sunday, May 22, 2022
  • About Us
  • ImagiNATION
  • Adverts
  • Rate Card
  • Contact Us
The Nation Online
Advertisement
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
No Result
View All Result
Home Columns Economics and Business Forum

Private foreign investment

by Staff Writer
30/01/2012
in Economics and Business Forum
4 min read
0
Share on FacebookShare on TwitterShare on WhatsAppShare on LinkedinLinkedinShare via Email

…Continued from Friday

Last week, we discussed arguments in favour of foreign investments. Today, we will look at arguments against foreign investment.

Those who opposed to foreign private investment do so using both economic and philosophical reasons.

The economic reasons are in the form of rebutting the reasons given by those who advocate foreign private investment. They say:

Stifling local initiative: Though multinational corporations (MNCs) may bring in capital, their activities may inhibit local initiative to save money and invest. Quite often major corporations extract concessions from government privileges that are at the expense of local businesspeople. They may get concessions to import components for their factory from a branch situated in another country instead of encouraging local entrepreneurs to do that.

The MNC thinks in terms of boosting profits for the whole corporation and not just for a branch located in one country.

Drain on the nation’s foreign reserves

To begin with, a foreign investor may indeed bring into the country the much-needed reserves. But later it orders components from abroad using the exchange that is available in the country from other sources such as export earnings.

The foreign reserves are further drained when the MNC repatriates (sends back) the capital by using the country’s foreign reserves; for this reason, the net reserves brought in by a foreign investor may not be as great as it seems at first.

Liberal tax concession and transfer pricing

Though MNCs when taxed contribute to government revenue, the contribution is weakened by the tax holidays they obtain from the government.

Before they launch their project, they usually demand from the government exemption from paying taxes on their earnings for the first years, for example, five years. In this way, the government is deprived of revenue from taxing the corporation.

Governments lose revenue on transfer pricing. This is the case when an MNC orders supplies from its own branch in another country. Usually, it inflates the cost of these supplies and then demands investment allowance on them. Some of the major firms persuade governments to put up tariffs to protect their products thereby raising prices to consumers.

Little impact. The management, entrepreneurial skills, ideas and technology and overseas contacts provided by an MNC may have little impact on the local people and may not be relevant to the needs of the country.

Philosophy argument

Some academics and philosophers have put forward more ideological reasons for casting doubts on the activities of the MNCs. These are some of the arguments:

Impact is uneven. It is noted that MNC reinforce dualistic economies. There is an active manufacturing sector with a poor agriculture sector. The MNCs encourage rural people to migrate to urban centres because the rural ones are neglected.

The manufacturers produce what meet the needs of a less sophisticated part of society while neglecting products needed by the majority of people.

Monopolistic of local resources. Through constant advertising, the MNC manages to create a dominant, monopolistic position in the market and prevents locally started small businesses from developing. The advertisements create consumption habits for luxuries instead of necessities.

Misallocation of local resources: Following the argument above, local resources are allocated to socially undesirable goods instead of the goods which enrich people’s lives. This process aggravates the inequality between the rich.

Bad influence on governments: Because multinational corporations operate or can operate in a number of countries they often intimidate governments by threatening to close down and locate in another country if they are not given the privileges they demand such as tax holidays, excessive tariff protection, cheap provision of factory sites, tax rebates or drawbacks.

This phenomenon is known as ‘race to the bottom’. Member countries of economic groupings like the Southern Africa Development Community (Sadc) should ensure MNCs do not try to force them into social harmful concessions using the ‘race to bottom’ tactics.

Damaging host economies: Some of the MNCs adopt predatory tactics to drive out local entrepreneurs through excessive advertisements, preventing these budding entrepreneurs to have access to overseas suppliers. They do not want small businesses to grow and compete with them. They are like sharks that swallow the small fish.

Engaging in corruption: It is often said there is a lot of corruption in developing countries. They say ministers are corrupt, government officials are corrupt. Quite often the initiative is taken by the foreign investors who promises the public official ‘a cut’ if the government awards him the contract.

We will next time discuss how governments frame their policies to get the best out of complex situations like the ones described above.

Previous Post

NLB raises K72.3m

Next Post

Injured youth is DPP—Police

Related Posts

Economics and Business Forum

Why do you have him for a friend?

February 8, 2020
Economics and Business Forum

Do you have any idea what your retirement needs will be?

February 16, 2019
Economics and Business Forum

Stop spoiling your children

November 17, 2018
Next Post

Injured youth is DPP—Police

Opinions and Columns

People’s Tribunal

What was that press briefing all about?

May 22, 2022
Big Man Wamkulu

Wife, in-law plotting my downfall

May 22, 2022
My Thought

Tonse Alliance died on arrival

May 22, 2022
Layman's Reflection

New IMF programme pivotal moment for Tonse Alliance

May 21, 2022

Trending Stories

  • Mhango in action for Pirates before things turned sour

    Gaba comes up with two options

    0 shares
    Share 0 Tweet 0
  • Malawi’s public debt now at K5.8 tn

    0 shares
    Share 0 Tweet 0
  • Onesimus leaves Major One Records

    0 shares
    Share 0 Tweet 0
  • AG urges cancellation of Movesa no. plate deal

    0 shares
    Share 0 Tweet 0
  • RFA, Malga disagree on toll gates revenue

    0 shares
    Share 0 Tweet 0

Malawi-Music.com Top10

  • Values
  • Our Philosophy
  • Editorial policy
  • Advertising Policy
  • Code of Conduct
  • Plagiarism disclaimer
  • Disclaimer
  • Privacy Policy
  • Terms of use

© 2022 Nation Publications Limited. All Rights Reserved.

No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation

© 2020 Nation Publications Limited. All Rights Reserved.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.