Times of Zambia, 14th April 2003

The size of local markets is on of the most important ingredients for a country to interact foreign direct investment (FDI).

This is according to a 1984-2003 publication of foreign direct investment in developing countries produced by the CUTS Centre for International Trade, Economic and Environment based in India.

When competing for FDI, policy markers have to be aware that various measures intended to include FDI were necessary, but far from sufficient to do the trick.

Reforms such as privatization tended to be more effective in stimulating FDI inflows, but need to be complemented by reform in other areas like competition policy, in order to ensure that FDI inflows were beneficial.

“Still other determinations of FDI, which were sufficient in the past, may prove to be less relevant in future. But the size of local markets appears to be the most important case in point.” the publication says.

The good news however is that FDI is anything but a zero-sum game in which one particular country could attract FDI only at the expense of another.

Additionally, FDI was likely to take place when new investment opportunities emerge in countries opening up FDI and all developing countries have a chance to become attractive to foreign investors.

Globalisation could be expected to include a shift from marker-seeking FDI to efficiency- seeking FDI while international competitiveness of local production by foreign investors, would then, turn out to be a decisive factor shaping the distribution of future FDI.

This involved major Challengers for policy makers in developing countries.

In general terms, the task is to create immobile domestic assets that provide a competitive edge and attract internationally mobile factors of production.

Attraction of FDIs also depends on conductive economic fundamentals as fiscal and financial incentives offered to foreign investors may do more harm then good, especially if these incentives discriminate against small investors and local firms.