Kaieteur News, Editorial. 16 April 2008.
http://www.kaieteurnewsgy.com
For two decades now we have been following the triple commandments of
the 'Washington Consensus -- stabilize, liberalize, and privatise – in
order to attract foreign direct investments (FDI). The results have
not been exactly stellar.
From our perspective as a developing country, FDI is of significance
only if it creates employment as well as provides capital for
development. However, since transnational corporations prefer to
invest in the modern sectors of the economy, which demand relatively
more skilled personnel than we have at present, our employment needs
go unfulfilled.
As regards capital, FDI makes only marginal contributions in capital
formation. Actually, in the equation of growth and investment, growth
is a crucial determinant of FDI itself; therefore, the question is
whether developing countries commercially grew as a result of the
contribution of FDI, or they grow first in order to attract FDI?
The evidence of FDI, so far attracted by developing countries, shows
that FDI tends to gravitate towards countries that are stable and have
efficient infrastructure – neither of which we are blessed with.
Economic growth, on the other hand, seems to increase with greater
trade openness, instead of foreign direct investment inflows. The
mission lies ahead in making use of investment for our development
needs. So far, the evidence indicates that there are difficulties in
deriving macro-economic benefits from most FDI, as well as to get them
into our area of comparative advantage — agriculture.
Our FDI is highly concentrated in three sectors: telecommunications,
financial services and mining. Our land, labour and capital are not
fully developed for the advanced sector investment. Therefore,
technology transfer as well as employment generation have proven to be
a myth.
In addition, these companies charge high management and services costs
in the name of technological transfer, but actually they use it to
lower their taxes and enhance their profits. In fact, these FDI's have
no commitment for technology transfer to the host country.
The ultimate goal of domestic growth will be achieved only if the
investment is not volatile. The investment in infrastructure,
agriculture and manufacturing sectors will support export-led growth.
That is the reason why neither the countries which developed in the
19th century, like Germany, US or Japan, nor the countries which
developed in the 19th and 20th centuries, like Russia, China and
Korea, placed FDI investment as central to their development strategy,
because benefits and costs are unevenly distributed between the sender
and receiver of these investments.
Though one can point to the success of the East Asian "tigers" as due
to the attraction of foreign investment, what must be appreciated is
that Malaysia, South Korea, China and Japan have made technology
transfer as a performance requirement, along with strong regulations
of the markets.
In addition to maintaining macro-economic stability, all high growth
countries capitalised the foreign investment benefit by having
protectionist measures to attract foreign investment and to spur
export-oriented growth at the same time.
Nevertheless, this does not suggest that we take a regressive trade
policy, but that we should take advantage of the opportunity of
economic globalization. There is also no doubt that economic
globalization is more advantageous for developed countries but, still,
we need to capitalize the opportunities whatever offered to us through
foreign investment by diverting it to the right sectors.
Our Government has rightfully identified our agriculture sector as the
fulcrum of growth in the near term, and has embarked on an ambitious
diversification programme in this area – especially into
non-traditional crops. As we pointed out before, we cannot lose in
this area and we cannot wait on FDI.
We predict, in line with our observation above, that when growth is
demonstrated here, the FDI will arrive. But we will have to ensure
that they follow our development strategy.
In conclusion, it is suggested that, for us in the long run, foreign
capital is no panacea for sustainable development and growth, given
our industrial, institutional and human resource constraints, and will
have no ultimate correlation with economic growth, unless we are able
to capitalize the FDI for competitive advantages and export-led
growth. To believe otherwise will only ensure that we end up simply as
a facilitator for other players.
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