Cost Implications of Building Local Firms in Africa
Most of the African countries are poor hence not in a position to finance their investments. Eventually, most citizens and governments believe that it’s only through Foreign Direct Investment (FDI) that African countries can grow.
FDI comes with technical and organizational skills; it creates more employment opportunities to the locals. Besides, it pays taxes to the government hence helping the state in serving its citizens. Moreover, FDI helps in harmonizing the local economies with the global ones, and this sounds a sweet deal that no one can neglect.
All the benefits that come with FDI are only but short-term achievements with long-term high costs. Foreign firms only hinder the development of the local businesses making citizens not to realize the benefits of their companies. A host country can only be used as an assembling center, but not a manufacturing point although most values are derived from manufacturing companies as compared to assembling.
The political instability and financial constraints in most of the countries in Africa do not provide an enabling environment for the starting of local firms. The government is entitled to protect the local companies from international competition by placing high tariffs and subsidies to the foreign investors. The finished products by the local firms tend to be of poor quality due to lack of enough workforce and funds to run their plans. The long-term cost of producing a product is high if the government happened to give the right protection to the local firms.
Only a few local companies tend to withstand the harsh conditions hence increasing failure rates, therefore, making FDI as an ideal option. The countries that have decided to transform from agribusiness to an industrial economy have to pay the high costs.
Sometimes, FDI comes with problems like smuggling, tax evasion, profit repatriation, transfer pricing, reliance on expatriates and many others which hinder the growth of local firms. It’s therefore clear that no country will ever transform through the assistance of FDI. It’s high time that the African countries should improve their local capital in large parts.
The only exemption is Singapore which has benefited from FDI, and this is credited to the fact that the country had the higher ratio of FDI to GDP during its development stages. Africa majorly still relies on foreign capitalists for her development and the only people to make sure that Africa moves away from depending on FDI are the elites.