The main aim of this paper is to provide a qualitative as well as quantitative study on foreign direct investment and FDI confidence ratio. Also in included is the report for top 25 countries in terms of FDI Confidence Ratio and what the important factors are that contributes to it. FDI Confidence Index With the continued success from most of the developing countries, most specially in Asia and Africa as well as the major turn around in Eastern Europe.
It has provided a different and yet a balances in the global economic situation. It was years before the situation has reached this stage as most Western countries has dominated the economic world, but this may not all be possible without the enhancement of some global economic policies like free trade, stable political policies and the emergence of technology. Free trade has been the main key for developing countries since manufacturing cost of goods and labors are unmatched against western countries.
These countries continues to progress as technological advancement was also been prioritized and political relationship through careful attention to cultural problems and other issues were addressed and adopt globalization in all their operations. Like in the case for India and China, which economic progress still rising and its government continues to work on how they can sustain the progress, has also created impact around the region and the development becomes an epidemic success throughput the region.
But in this paper the main focus will be on Foreign Direct investment (FDI) and how it becomes attracted to foreign investors. This study will also include some of the top performing countries with regards to FDI and lastly is discussing the FDI Confidence Index. In FDI concept, inward foreign direct investment is actually happens when foreign investor’s capital is directly invested in the local country. This has greatly influence FDI, from reaching a high of 1.
4 trillion between 1999 to 2000 but a long and major turn around from that year to 2003, which it reaches the lowest FDI inward level of 558 billion USD against 400 billion in 1996. But, through major improvement in global as well as local economic policies, it slowly climbing up and was considered to be the post-2003 recovery. With these major developments it has recorded 1. 3 trillion USD in global FDI inflows in 2006. FDI was mainly the measurement for foreign investors around the world to see where can be more attractive in setting up business opportunities.
Just like for China and India not only they have the most number of populations in the world which are no. 1 and 2 in the world, they also have re-organized economic policies in such a way that it would give benefit to foreign investors. In order to have a better look on the impact of FDI to the world and what contributed these countries to perform well as well. The following are the top 25 countries for 2007. China, India and the US still hold the top 3 spot with 2. 21, 2. 09, and 1. 86 confidence indexes respectively.
United Kingdom also hold the same spot at number four with 1. 81, for the 5th to 8th spot are Hong Kong, Brazil, Singapore and United Arab Emirates. Al of these countries has moved up as compared to the last 2005 FDI report, but the most remarkable one, and probably among all the countries in the top 25 is United Arab Emirates in the 8th spot from being at number 22 in the last 2005 report. But, it was not the same situation for Russia, Germany and Australia who drops from the previous report by currently holding the 9th to 11th.
For the 12th to 14th, once again it was a remarkable year for Vietnam, France and Canada for moving up in the standings. Japan maintained the 15th spot. Has also moved up to the standings for the 16th to 18th and moved down for 19th to 20th spot, and these countries starting with the 16th spot for Malaysia, Other Gulf Countries, South Africa, Mexico, and Turkey. To complete the lists, the last 5 countries that complete the final rankings are: Indonesia, Poland, Central Asia, South Korea and Czech Republic.
In order to have a better understanding as how Foreign Direct Investment works, let us find some of the relevant factors that contributed to the success of countries in the list. First, it is important to look at the percentage change in outlook compared to year ago. This ,will only include the top 10 performers: (1) India with 36% improvement, (2) China-35%, (3) Brazil-30%, (4) UAE-29%, (5) Vietnam-28%, (6) Hong Kong-24%, (7) United States -23%, (8) Russia-23%, (9) United Kingdon-23%, and (10) Germany-22%.
Secondly, in terms of how investors feels and confidently finds what country is best for business opportunities. First stop, Asian region, the top three most wanted investment destination, which are presented in proper order are, China, India and Vietnam. For European region, the top three are, India, China and Russia, and lastly for the North American Investors, still United States earns the top spot, and then China and India. Another factor that contributes to progress in FDI for countries is on how they focused on the important challenges to the sustainability of global economic order over the next twenty years.
Global competition for scarce energy reserves and climate change are two top challenges in the lists and these were effectively addressed by top performers in FDI reports. (FDI Confidence Index 2007, 2007). FDI Confidence Index as the main basis for its ranking was based from some country specific factors, which will later be the basis for the computation for FDI confidence ratio. These country specific factors and this is in the order from the topmost priority down to the lowest.
(1) Top of the list for the basis of FDI confidence ratio is growth potential, (2) market size, (3) political stability, (4) regulatory environment, (5) labor cost/ quality, (6) economic policy, (7) domestic financial system, (8) tax structure, (9) exchange rate prospects, (10) capital controls, and lastly (11) economic reforms. These are the main basis as how foreign investors are attracted in performing business in the target country and as well the main factors of consideration for FDI confidence ratio.
Having the top two factors, potential growth and Markey size, it is quite obvious that it is also the main reason why not only the top 2 but the top 4 countries that consistently included, and that is no other than China, India, US and the UK. These countries have the majority of the global market in the entire world and they also maintain a substantial growth throughout the years as its government with the economic changes has been well adopted. Take for instance by studying what made China and India to stay on top, what are the other major aspects in more detail that brought them in their current top position.
This is also for readers to see the comparative study between these two countries. Understanding also where these two countries do got its edge over the other. In terms of market size, there was no question it was china got the edge over India, as well as other factors such as market growth potential, access to export market, government incentives, production and labor cost, infrastructure, financial and economic stability, economic reform, and a bit edge in factors such as quality of life, political and social stability, tax regime, competitor presence, and consumer sophistication.
On the other hand as for the edge of India over China, which was also the main reason why foreign investment is high, is due to the following factors: first, it has a high regulatory environment, not much a cultural barrier, high transparency, implements and has high respect to the rule of law, management talent and lastly and it is the most important factor of success in India is due to its highly educated workforces.
(Sullivan, A, 2005). With this quantitative as well as qualitative information, it only shows that Foreign Direct Investment is not easy to comply, it takes a lot of focus and effective prioritization in the different economic factors in order to achieve success in foreign direct investment. It is also a combined protection in the local economy and providing better opportunity for foreign investment.
This is also that in order to accomplish better FDI, it is very important that there should be careful study for the local country on what potential and needed investment that must come to the country, because if this will not carefully studied, it will greatly affect local economy. This will result to imbalance in the local economy. References
FDI Confidence Index 2007. Retrieved December 10, 2007, from A. T. Kearney Web Site: http://www. atkearney. com/shared_res/pdf/45130A_FDICI_2007. pdf Sullivan, A. (2005). Enhancing the image of SEE to attract FDI. Retrieved May 18, 2005, from A. T. Kearney Web Site: http://www. mee. government. bg/ind/doc_invest/BulgariaATKPowerpoint. pdf