Global Issue
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For countries burdened with debt, is foreign investment a better source of relief than financial aid?
Many countries, not just the third world nations contrary to common belief, rely heavily on external loans for growth. However, these countries have the economic stability needed to convert the money loaned into monetary development that pays the loans off in a relatively short period of time. These countries have the expertise, the workforce and an established business system that helps them do this.
Most third world nations however do not have such qualities. They have a weak government which has little or no control over the workings of business deals in the country. In Somali, for example, there has been a complete governmental collapse. Very few places are still functioning under the administration, the rest have just fallen apart, victimised to gangsters and drug dealers. They do have an abundance of natural resources. Congo, in terms of mineral resources is the richest country in the world, amounting to a staggering 24 trillion USD (United State Dollar). However in reality it is one of the poorest countries of the world. This is because such nations do not have the expertise and educated workforce necessary to utilise such resources in the right manner. That is why investments might be the right option.
Here are some related scenarios and their corresponding courses of action that I found relevant to the issue
Scenario 1: More strong countries invest in underdeveloped/developing countries, lifting the economy.
There is a definite possibility that more investors will turn their eyes towards the world’s richest continent, Africa, a country with the most number of grievously indebted countries and other developing/underdeveloped nations. The lack of development makes it inviting to prospective investors who can expand their business in these untapped parts of the world. Tanzania, though rapidly growing, does not yet have the technology to give electricity to all its towns. Orca Exploration, a Canadian natural gas producer, is poised to help alleviate this power shortage. By being one of the first major gas company to enter the country, it can quickly perhaps expand its reaches to all corners of the country, ensuring a brisk trade. Van Eck Global, a popular American investment management firm has established itself in Nigeria. It has made frontier stock markets of the continent more accessible to the international world. Given the current economic crisis, stock market investors might be more willing to invest in Africa as the stock market chain reactions here are slower and therefore less fatal.
When countries invest in such nations instead of giving them financial aid, they are bringing in a whole new level of exposure. By getting in contact with other nations who are more developed, the people of the underdeveloped countries are increasing their own skills and knowledge. They can learn so much through the trade links established. Most investing countries prefer to use local workers in their organization. This way the employment rates will also rise. Kenya has seen an increased number of Chinese and Indian investors in the past decade, greatly motivating its economic development. This mode of aiding financially ailing countries benefits both parties. Even those who invested in the country reap benefits as their business grows. This boosts the economy of the investors and the investees. It is how businesses have been growing for years now. This is just taking it a level higher, initiating investments between two countries.
Course of action:
The best course of action in such a scenario would be to encourage the growth of international ties. Once the underdeveloped countries have seen the positive impact such investments have on their economy, they should automatically start working towards attracting more investors into their country. This can be done chiefly through publicising their natural resources and their capabilities. There are many platforms where they can do this. The internet would definitely be an excellent place as the online market has grown 13% just this year and will continue to expand rapidly. The television is another effective platform. Kazakhstan has recently started using television adverts in a few news channels to attract prospective investors. This will be good for the economy and financial strength of the country.
Scenario 2: More strong countries invest in underdeveloped/developing countries, creating a negative impact.
Exploitation has been a major problem for a long time now. Perhaps it is an occasional manifested human trait; to exploit whatever is presented to us. In just this decade alone, we have become notorious for mercilessly abusing the natural resources and mistreating nature. Most of the financially troubled nations have a wealth of resources as they haven’t had the opportunity to use it to its full potential it. Greedy investors might make a beeline at this looming prospect. However, instead of sharing it with the locals and together using the resources for the benefit of everyone, the investing companies might be focused just on financial gain. In the current economic crisis, with stock markets falling to depressing levels, new methods of exploitation have begun to manifest themselves. People have begun to find fresh ways to underhand the rules and mould it to suit their needs. This is a big problem in the stock market world right now. China is another real time example of exploitation. Just a few decades ago, the Chinese were not as strong as they are now, as fast growing. But with the recent development boom, lots of investors have piled their resources in this forthcoming nation. However, in their excitement and the mad race for money, rules have been ignored. China is now one of the most polluted countries in the world. Only 10% of Chinese people have access to clean breathable air according to the standards of the European Union. Acids mixed in the air from unregulated factories in particularly polluted towns of China like Shanghai are causing acid rains in countries as far away as the United States of America.
The third world nations will also be more vulnerable to such exploitation as they already have only weak governments. Rules and regulations in most of these countries are very poor and the government officials are susceptible to bribery.
Course of Action:
This scenario is tougher to deal with because of its limiting factors. The governments cannot completely ban foreign investors as that will result in a weaker economy. Without international help, the country might not be financially strong enough to survive on its own. Therefore something must be done to regulate the investors, to preside over them. Perhaps an international organization can be created with all people interested in foreign investments registering as members. This organization can be financed by all its member nations. It can be given the role of setting rules and regulations and making sure that they are being followed. It has to have an unbiased, honest and determined group of leaders of who will guarantee that exploitation will not be a problem. While this is not very different from the International Monetary Fund (IMF), it would have a few changes. The IMF which does not pry too much into what and how the investors invest their money, they are just there to regulate the flow of money and help out where needed. Also, the IMF has only the countries that are part of the United Nations as its members. This organization that I am proposing must be open to everyone, even the private sector. Because nowadays, the private sector is more inolved and spends more money in third world investments than countries itself.
Scenario 3: No change happens
As investors start investing in the developing/underdeveloped country no change happens. Everything stays the same. The people continue to depend on financial aid to keep them afloat.
However, I think there are few possibilities of this scenario happening. Our economy is so interwoven that even a small change will affect something else and someone else. Therefore something of this international level, where foreign investors enter a country’s financial market, is bound to make an impact on the local people and their economy. Even the huge recession that hit the world in 2009 was started by just two American banks closing down. It snowballed into something so drastic and effecting. If not on such a big level, foreign investments will make at least a small change in the community.
Course of Action:
The only course of action when no positive change occurs is to encourage the onset of change. The governments of the related countries can try to bind their investors and local people more closely so that everyone is part of the deal. They can make a sort of contract where the investing companies do not make a profit if the local people don’t too.
Many countries, not just the third world nations contrary to common belief, rely heavily on external loans for growth. However, these countries have the economic stability needed to convert the money loaned into monetary development that pays the loans off in a relatively short period of time. These countries have the expertise, the workforce and an established business system that helps them do this.
Most third world nations however do not have such qualities. They have a weak government which has little or no control over the workings of business deals in the country. In Somali, for example, there has been a complete governmental collapse. Very few places are still functioning under the administration, the rest have just fallen apart, victimised to gangsters and drug dealers. They do have an abundance of natural resources. Congo, in terms of mineral resources is the richest country in the world, amounting to a staggering 24 trillion USD (United State Dollar). However in reality it is one of the poorest countries of the world. This is because such nations do not have the expertise and educated workforce necessary to utilise such resources in the right manner. That is why investments might be the right option.
Here are some related scenarios and their corresponding courses of action that I found relevant to the issue
Scenario 1: More strong countries invest in underdeveloped/developing countries, lifting the economy.
There is a definite possibility that more investors will turn their eyes towards the world’s richest continent, Africa, a country with the most number of grievously indebted countries and other developing/underdeveloped nations. The lack of development makes it inviting to prospective investors who can expand their business in these untapped parts of the world. Tanzania, though rapidly growing, does not yet have the technology to give electricity to all its towns. Orca Exploration, a Canadian natural gas producer, is poised to help alleviate this power shortage. By being one of the first major gas company to enter the country, it can quickly perhaps expand its reaches to all corners of the country, ensuring a brisk trade. Van Eck Global, a popular American investment management firm has established itself in Nigeria. It has made frontier stock markets of the continent more accessible to the international world. Given the current economic crisis, stock market investors might be more willing to invest in Africa as the stock market chain reactions here are slower and therefore less fatal.
When countries invest in such nations instead of giving them financial aid, they are bringing in a whole new level of exposure. By getting in contact with other nations who are more developed, the people of the underdeveloped countries are increasing their own skills and knowledge. They can learn so much through the trade links established. Most investing countries prefer to use local workers in their organization. This way the employment rates will also rise. Kenya has seen an increased number of Chinese and Indian investors in the past decade, greatly motivating its economic development. This mode of aiding financially ailing countries benefits both parties. Even those who invested in the country reap benefits as their business grows. This boosts the economy of the investors and the investees. It is how businesses have been growing for years now. This is just taking it a level higher, initiating investments between two countries.
Course of action:
The best course of action in such a scenario would be to encourage the growth of international ties. Once the underdeveloped countries have seen the positive impact such investments have on their economy, they should automatically start working towards attracting more investors into their country. This can be done chiefly through publicising their natural resources and their capabilities. There are many platforms where they can do this. The internet would definitely be an excellent place as the online market has grown 13% just this year and will continue to expand rapidly. The television is another effective platform. Kazakhstan has recently started using television adverts in a few news channels to attract prospective investors. This will be good for the economy and financial strength of the country.
Scenario 2: More strong countries invest in underdeveloped/developing countries, creating a negative impact.
Exploitation has been a major problem for a long time now. Perhaps it is an occasional manifested human trait; to exploit whatever is presented to us. In just this decade alone, we have become notorious for mercilessly abusing the natural resources and mistreating nature. Most of the financially troubled nations have a wealth of resources as they haven’t had the opportunity to use it to its full potential it. Greedy investors might make a beeline at this looming prospect. However, instead of sharing it with the locals and together using the resources for the benefit of everyone, the investing companies might be focused just on financial gain. In the current economic crisis, with stock markets falling to depressing levels, new methods of exploitation have begun to manifest themselves. People have begun to find fresh ways to underhand the rules and mould it to suit their needs. This is a big problem in the stock market world right now. China is another real time example of exploitation. Just a few decades ago, the Chinese were not as strong as they are now, as fast growing. But with the recent development boom, lots of investors have piled their resources in this forthcoming nation. However, in their excitement and the mad race for money, rules have been ignored. China is now one of the most polluted countries in the world. Only 10% of Chinese people have access to clean breathable air according to the standards of the European Union. Acids mixed in the air from unregulated factories in particularly polluted towns of China like Shanghai are causing acid rains in countries as far away as the United States of America.
The third world nations will also be more vulnerable to such exploitation as they already have only weak governments. Rules and regulations in most of these countries are very poor and the government officials are susceptible to bribery.
Course of Action:
This scenario is tougher to deal with because of its limiting factors. The governments cannot completely ban foreign investors as that will result in a weaker economy. Without international help, the country might not be financially strong enough to survive on its own. Therefore something must be done to regulate the investors, to preside over them. Perhaps an international organization can be created with all people interested in foreign investments registering as members. This organization can be financed by all its member nations. It can be given the role of setting rules and regulations and making sure that they are being followed. It has to have an unbiased, honest and determined group of leaders of who will guarantee that exploitation will not be a problem. While this is not very different from the International Monetary Fund (IMF), it would have a few changes. The IMF which does not pry too much into what and how the investors invest their money, they are just there to regulate the flow of money and help out where needed. Also, the IMF has only the countries that are part of the United Nations as its members. This organization that I am proposing must be open to everyone, even the private sector. Because nowadays, the private sector is more inolved and spends more money in third world investments than countries itself.
Scenario 3: No change happens
As investors start investing in the developing/underdeveloped country no change happens. Everything stays the same. The people continue to depend on financial aid to keep them afloat.
However, I think there are few possibilities of this scenario happening. Our economy is so interwoven that even a small change will affect something else and someone else. Therefore something of this international level, where foreign investors enter a country’s financial market, is bound to make an impact on the local people and their economy. Even the huge recession that hit the world in 2009 was started by just two American banks closing down. It snowballed into something so drastic and effecting. If not on such a big level, foreign investments will make at least a small change in the community.
Course of Action:
The only course of action when no positive change occurs is to encourage the onset of change. The governments of the related countries can try to bind their investors and local people more closely so that everyone is part of the deal. They can make a sort of contract where the investing companies do not make a profit if the local people don’t too.