Question

1. Conduct a comparison between the cost and benefits of FDI for South Africa as the host country? +\- 250 words

Answer 1

Solution:

• Benefits:

  1. Economic Development Stimulation

  Foreign direct investment creates new jobs thus stimulate the target country’s economic development

  2. Increment in Income: With more employment and higher wages, the national income usually increases; and economic growth is spurred

  3. Tax Incentives.
  Parent enterprises would help in getting tax incentive, additional expertise, technology and products.

  4. Development of Human Capital Resources.

  A country with FDI can gain widely by developing its human resources while maintaining ownership.

  5. Resource Transfer.
  FDI will permit resource transfer and other exchanges of knowledge

  6. Increased Productivity.
  The facilities and equipment given by foreign investors can enhance a workforce’s productivity in the target nation

  7. Reduced Disparity Between Revenues and Costs.
  Foreign direct investment decreases the disparity between costs and revenues. With such, countries will be able to make sure that costs of production will be the same and can be sold easily.

  Costs:

  1. Obstacle to Domestic Investment.
  As FDI primarily focuses its resources elsewhere other than the investor’s domestic country, foreign direct investment can certain times hinder investment in home country.

  2. Risk from Political Changes.
  Since political issues in several nations can instantly change, FDI is very risky.

  3. Higher Costs.
  If you invest in certain foreign countries, they might experience it to be more expensive than when you export goods. Thus is very imperative to prepare sufficient money to set up such operations.

  4. Negative Influence on Exchange Rates.
  These can occasionally affect exchange rates to the beneficial of one country and the detriment of another country.

  5. Expropriation.
  The change in political can also result to expropriation, which is a case where the government will have control over the property and assets.

  6. Economic Non-Viability.
  Considering that FDI may be capital-intensive from the point of view of the investor, it may certain times be very economically non-viable or riskier.

  7. Negative Impact on the Country’s Investment.
  The rules governing the direct investments and foreign exchange rates might negatively affect on the investing country.