Attracting and Evaluating Direct Foreign Investment: Part 4

Evaluating Direct Foreign Investment

Prior to assessing the results of direct foreign investment, goals and priorities should be established. It is impossible to determine if you got where you wanted to go without having already determined where you wanted to go. It is also a must to establish the cost of providing the same benefits by other means. For example, "What would be the cost of importing goods verses the cost of making the same goods locally?"

Administrators must also choose to do either a macro economic or micro economic evaluation. To look at a broad set of goals, macro evaluation is needed. If only one or two issues need to be looked at, then a micro evaluation is acceptable. An example of the latter is, "Did we increase exports?"

A problem for less developed countries is obtaining reliable statistical data. In any case, to adequately reflect the result of multinational enterprise, an effort should be made to determine the secondary effects of their investment and activity. Examples of secondary effects include the use of local suppliers, sales to local customers, information dissemination and the effects on development of the country in general.

Goals change over time and need to be analyzed from several points of view. In regard to economics, it is important to be aware of the type and quantity of products being supplied in your economy and to be able to identify deficiencies. There is also the question of equity; "How is income and property distributed among businesses and among the population?" And there is the question of sovereignty. Perhaps the government should increase its participation in decision making processes.

There are a number of issues that must be addressed to evaluate and re-assess government policies related to foreign investment. The first to look at is whether or not multinationals introduce new technology to the local economy. If they do not, it may be due to inadequate technological infrastructure.

A country will need to decide if its policies are maximizing benefits. Desirable benefits include integration of local businesses with multinational operations and multinational production of products suited to local needs. A government may want to work toward eliminating tax evasion with stronger policies towards transfer pricing and payment of royalties and fees.

The evaluation process may reveal that multinational enterprise(s) within a country are using capital intensive technology. If this is the case and the country desires to increases employment, perhaps they need to ask themselves if the local labor costs are too high.

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