Foreign Direct Investment A General Overview of Its Forms, Trends, Incentives and Spillover Effects

Current foreign direct investment (FDI) trends reflect the age of globalization that we are in today. The investment inflows into various sectors, infrastructure projects and nations and the outflows from organizations, sovereign wealth funds and investors all over the world are rising. The majority of this FDI is in the form of mergers and acquisitions (M&As), to a lesser extent through Greenfield Investment and although still a small wedge of the total FDI global pie, sovereign wealth funds have sharply increased their global presence over the past few years. Transnational corporations (TNCs), which are the driving force of much of this investment, are seeking new markets, resources and conditions that enable them to benefit stakeholders. Favourable host nation regulations aimed at providing attractive conditions to TNCs have continued to be adopted throughout the world while at the same time so too have unfavourable ones (for TNCs) in recent years as some host nations have been created more cautious policies towards foreign organizations. One could speculate that this exhibits a desire by host nations to create favourable conditions within their economies while at the same time ensuring that policies and investment are more targeted at awarding spin-offs from the investments that are sustainable and diffuse through the local and national market. Properly implemented FDI incentive packages with mutual benefits for all stakeholders are key to all parties involved. The benefits for host nations are the spillover effects that contribute to economic stability, more skilled labour, innovation into similar or new sectors, higher productivity and quality standards, new technology, improved infrastructure and overall improvements to hard and soft technologies transferred to the local marketplace. In order for this to be achieved, clearly targeted policies must be established and enforced in order to promote the true benefit of FDI - that is the spillovers to the economy. It is in the best interest of all stakeholders that expectations are stipulated when crafting policy. Failure to do so will result in unsustainable advantages but doing so will surely promote an environment where all can enjoy the benefits of FDI