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How can African countries attract Foreign Direct Investments (FDI) inflows? What is the process and effect in terms of risk/reward evaluation by MNE’s in terms of utilizing the SMP for targeted opportunities in specific LDC’s in Africa

Abstract

The research work focuses on Africa; how economic landscapes are changing in different African countries. Relevant and valid evidence has been gathered and analyzed/sorted to understand economic and political scenarios, prevailing in different countries, of Africa. In addition, factors, which affect Foreign Direct, have been identified and scrutinized. Important question, How Africa can increase FDI inflows?, has also been discussed in this paper. In the last part of the paper, PESTLE Analysis has been used to study Africa, as an economic opportunity, for MNEs. Through different economic analysis, the conclusion has been drawn, which clearly suggests that Africa is unique economic opportunity, which can also be used as export base, for Multinational Companies.

Introduction

The modern corporate system has stems out from Industrial Revolution, which not only altered economic model, but also it altered social and political systems as well. The change was not just qualitative, but also quantifiable. The diversification of production, new production processes and altered production volume have birth to market system, which was based on demand and supply mechanisms.

The early economic models or pure capitalist models were actually closed economic models, which did not only discourage government intervention, but also trade and foreign investment. This was because classical economists believed that trade and foreign investment was detrimental for an economy, as it reduced the benefits of optimal allocation of resources. This idea remained prevalent for considerable time, as it is evident from trade data and history of Foreign Direct Investment. However, there were companies or corporations, which undermined this economic concept, even these economic notions were considered sacred, and invested in foreign economies. However, the scope and the size of investment were very small, which makes it almost negligible.

The classical economic concepts were strongly challenged by Great Depression, of 1930s, which forced the alteration, in classical capitalist model. The economic crisis did not only introduce Fiscal instrument, in to an economy, but also it had encouraged trade and to certain extent, Foreign Direct Investment (Elizabeth, 2006).

The study of data or evidence, pertaining to Foreign Direct Investment, makes it evident that Foreign Direct Investment increased or swelled, as the means of commutation enhanced. Another factor, which contributed the growth of FDI, was information. As the information system improved, the size, of Foreign Investment, increased dramatically. This was because companies and corporations had a better information or data, which they could analyze to understand a particular market or economy. The increased information provided a holistic picture, which allowed companies and corporations to form better strategies and tactical corporate plans the ensured swelled revenues, for profit-seeking firms.

It must be recognized that for any corporation, it is intricate to penetrate and establish corporate, in a foreign market and economy. However, this process, of penetration in foreign market and economy, has been made easy by the symmetric of information. Therefore, companies, organizations and firms have enhanced their organizational structure to indentify and exploit corporate opportunities, presented by global corporate and economic system (Mankiw, 2012).

Foreign Direct Investment and Emerging Economies

Before addressing the research question, it is imperative to understand Foreign Direct Investment, its reasons and its objectives. This is because, without a clear comprehension of this subject or topic, it would be hard to address the research question.

The matured economies or developed economies are actually highly competitive and segmented economies. This is because corporate institutions and infrastructure has developed. There is a symmetric of information and because number of buyers and sellers, organizations or firms are at breakeven. This is evident from the study, developed economies and corporate systems, that markets, of developed economies, are imperfectly competitive. This means that companies can easily enter and exist and because of the symmetric of information, they are not able to generate high profits. Therefore, large corporations, which have capital/faineance and technology, seek other markets and economies, which are less competitive and more lucrative (Africa Ranking, 2014). As discussed earlier, because of the increased information, companies or firms are in better position to take strategic decisions, regrinding investing in other economies. Therefore, when economies become highly fragmented and c

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