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December 13, 2005



An interesting example of something that ought to be a principle of economics: exploiting the poor is a mug's game. Exploit the rich, they have more money.

More seriously, I recall from Alan S. Milward's War, Economy, Society 1939-45 that the Germans gained every year from occupied France what they derived in total from the entire occupation of western Russia, and that even their gains from Norway annually beat the output from occupied Russia.


I've not looked at the figures but I would have thought the Africa share has risen because of the boom in commodity prices, e.g. gold, where a lot of the companies are head quartered in London.

The French figures, are the inflated by house purchases. I remember something about that from that time when France (last year?) was the largest recipient of FDI in the world.

Marcin Tustin

Yes, no-one invests in Africa, probably because people prefer to deal with risks they can quantify, and feel some kind of control over, like people hating their product, rather than risks like having their land and factory stolen with the collusion of a corrupt state, or being blown up by rebels or state forces (where available).


Some UNCTAD data is very revealing too. By source and destination, the stocks of FDI flow mostly beteween advanced industrialised nations. In fact the UK is second behind the US for being the largest host of all FDI stock.

Africa - smaller markets, higher risk, even if better potential returns. The returns might look better because all investments of acceptable risk and scope and scale are being optimised. Agree with legal and security risks of setting up assets in places like Africa. But China poses similar problems.

There are problems though of investment roundtripping etc to take advantage of incentives or corruption. Plus obviously the City sucks in a lot of FDI. Usually you can get adjusted figures that can strip out the FDI that goes into financial intermediation.

top 10 source nations for FDI ranked by total FDI stock:
1 United States
2 United Kingdom
3 France
4 Germany
5 Netherlands
6 Switzerland
7 Hong Kong, China
8 Japan
9 Belgium and Luxembourg
10 Canada

Top 10 recipient nations for FDI in terms of total FDI stock held:
1 United States
2 United Kingdom
3 Germany
4 China
5 France
6 Hong Kong, China
7 Belgium and Luxembourg
8 Netherlands
9 Canada
10 Spain

Get it all here: http://www.unctad.org/Templates/Page.asp?intItemID=1584&lang=1

This is fantastic - perhaps looking at the index of corruption might give some insight into who doesn't get FDI... http://www.nationmaster.com/index.php


"UK firms invested more in France (£20.5bn) than in the whole of Africa.
This shows that one crude anti-globalization view is wrong."

Eh? Globalisation is a process, not a state. A single set of data doesn't 'show' anything - what's the trend?


Captial will go where the returns are highest but also where it is welcome and safe. This means property rights and market processes are respected and people can put the capital to work as easily as possible (with minimal leakage to rent seekers) . This explains why some countries receive a lot of FDI and others do less well. The headline figures for returns in different countries and regions do not show the difficulty in achieving them


There's so many rationales for FDI really, its hard to generalise about whether it matches the ideologies of pro and anti globalisers. So casting their particular views aside...

Some reasons for engaging in FDI include:
- market access - locating in the region gets you access to the market
- increasing market share
- acquiring advanced technology from overseas
- acquiring primary resources from overseas
- platforms for exporting
- offshoring capital or finance
- seeking more stable operating conditions - e.g. Chinese MNCs seek more stable UK financial and legal framework
- seeking comparative advantage where it is present (e.g. cheap labour)
- incentives (tax breaks etc) - although these are often much subservient or reinforcing the above factors.

How that fits in with the anti-globalisers view of the world is anyone's guess. But it hurts my head to think about it. So I won't.


The pro- versus anti-globalisation divide is much too crude, in any case. We currently have, for example, a government keen to promote its restrictions on labour mobility (anti-globalisation?) whilst equally keen to free up capital movements (pro-globalisation?). Someone on the political Left would reverse that balance - supporting free migration, but opposing unrestricted capital flows. The real question is about the form globalisation takes.

This business about capital "going where the returns are highest but also where it is welcome and safe. This means property rights and market processes are respected and people can put the capital to work as easily as possible (with minimal leakage to rent seekers)." That does not describe some of the largest recipients of FDI in the developing world - I'm thinking particularly of China. Very high levels of corruption (and surprisingly insecure property rights) will be tolerated if returns can be secured at the other end.

Far more important in determining capital flows are the sequencing and infrastructure effects: relatively small amounts of capital, producing high average returns, will flow to underdeveloped countries where it can be concentrated in the few industries where the necessary infrastructure is in place. So you get perverse over-development in some sectors because there's little point in investing in anything else - there's not sufficient transport, power sources, labour markets, etc etc, to do much else. There's a co-ordination problem involved in balancing the forms of investment made that can easily be solved in the developed North - everything else is already in place for you - but is much harder in the South.


Interestingly its estimated that something like 10-20% of Chinese FDI is roundtripping. I.e. its Chinese money going out the door and then coming back in to take advantage of incentives.

China is getting a big share of FDI and its not safe or secure, or stable! its a bit of a gold rush mentality. Is it sustainable!? some of these early movers will get their fingers burnt, some will become as corrupt as the bureaucrats to keep business and get returns.


Is it not the case that at the end of colonialism Britain invested 25pc of its FDI into Africa? British investment in Africa was always high risk, lots of risk it would be a disaster, but enough exceptional returns to make it worth it - especially with the security that these countries were governed by Britain.

So clearly the issue today with investment to Africa being on 20% (as a share) of what it was barely more than 50 years ago is somewhat dependent on the Governance of African nations?

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