FDI can hold developing nations prisoner: Expert
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)