FDI can hold developing nations prisoner: Expert
JAKARTA (JP): Foreign direct investment inflows will strengthen a country's international competitiveness provided the country controls it, South Korean professor Dong-Sung Cho said yesterday.
But Cho, a professor at Seoul National University, warned that developing countries would become a prisoner of foreign direct investment if they did not control ownership.
Conventional wisdom in advanced countries was that outward direct investment would have advantages in terms of ownership, location and internationalization, Cho said.
"Accordingly, when a developing country does not have any ownership advantages, it is destined to become a prisoner of inward foreign direct investment," Cho said at a seminar hosted by the Center for Strategic and International Studies.
He said the main reason developing countries' should invite foreign direct investment should not be for the inflow of funds but for technology and management skills.
If the objective was funds, the best source of funds was domestic saving and the second best was foreign loans, Cho said.
"Therefore, foreign direct investment should be used as a mechanism to build your muscle," he said.
He suggested developing countries like Indonesia develop a mechanism through foreign direct investment policy to strengthen its international competitiveness.
Cho identified five physical factors and four human factors which could be used to improve a country's international competitiveness.
The five physical factors were endowed resources, related and supporting industries, business environment, domestic demand and chance events.
The four human factors were politicians and bureaucrats, entrepreneurs, worker as well as professional managers, designers and engineers.
Based on his analysis of the dynamic evolution of international competitiveness, Cho found underdeveloped economies still relied more on endowed resources and cheap labor.
Cho said domestically available physical resources were the least dependable source of competitiveness so the utilization of endowed resources would not necessarily strengthen a nation' international competitiveness.
"If you only exploit your natural resources, you won't be able to manufacture machinery which you need to become a full-fledged advanced country," Cho said.
Human resources
He said the day a government severed its dependence on physical resources and concentrated on developing the level of human resources was the first day a nation started to develop its competitiveness.
Cho said developing economies would remain dependent on the business environment and politicians and bureaucrats.
"In a developing country, the government should play a central role in grooming and guiding entrepreneurs and providing them a with fertile business environment," Cho said.
He said semideveloped economies would rely more on related and supporting industries and entrepreneurs, while developed economies would depend on domestic demand and professional managers, designers and engineers.
Commenting on Cho's argument, local economist Djisman Simandjuntak said Indonesia had all factors, except business- friendly politicians and bureaucrats and a conducive business climate.
"We have enough entrepreneurs and entrepreneurship. If we can create a real conducive business climate, meaning with fair competition, I think we will be able to achieve the level of a full-fledged semi-developed economy within the next 15 years," Djisman said. (rid)