Abstract
Foreign direct investment (FDI) has become the most important source of development
finance. Foreign direct investment is said to be taking place when a foreign corporation
buys at least a 10 percent shareholding in a domestic firm or undertakes a greenfield
investment in a foreign country. Recognising that FDI can contribute to economic
development, all governments want to attract it. The world market for FDI is highly
competitive, and developing countries, in particular, seek such investments to accelerate
their development efforts. Both developing and developed countries are competing for
global FDI flows. The result is that FDI flows are concentrated in few developed
countries. It becomes critical for economic development to developing countries to
attract more FDI flows into their economies. FDI flows are basically the result of
investment decisions taken by trans-national corporations in response to certain pull
factors. Whether a TNC will undertake FDI in a foreign country or not depends on the
existence of determinants that influence such a decision. The increase in global FDI
flows is a result of firms decid ing to invest in foreign markets rather than to export to
those markets. What makes FDI attractive is that, unlike portfolio investment, it is almost
of permanent nature. FDI is also more desirable than loans and official development
assistance (ODA) in that it does not create debt. For this and other reasons, countries are
seeking to attract FDI flows. Various economic development theories have been
advanced to explain the reasons firms undertake FDI rather than export to those foreign
markets. These theories include theories that focus on internal organisation or the
intending firm. These theories assume the imperfect market condition. Foreign firms
will undertake FDI if they have superior oligopolistic advantages over the local firms.
The Southern African Development Community (SADC) like other regions and countries
is seeking to attract foreign direct investment. The present analysis of the performance of
this region show that its share of global FDI flows is very small. The region is facing big
challenges as a result of weaknesses in its individual member countries. South Africa is
the best performing member in terms of attracting FDI flows and undertaking FDI in
other regional countries. FDI inflows into the SADC region are predominantly goin g into
resources. This evident when case of Angola and Democratic Republic of the Congo is
analysed. It can be said that the FDI inflow into the region is predominantly resourceseeking.
It can, however, also be said that some FDI is driven by the market-seeking
motive. This is evident in the case of FDI in the food and beverages sector.
It is important that the countries in the SADC region work hard to address those
determinants that are critical to attracting more FDI. It is evident that some countries can
improve their international image if they can address negative factors such as conflicts,
crime and government apathy to disregard of the rule of law. Policies and strategies that
are aimed at improving the image of the region need to be coordinated among member
countries, if the region is to increase its share of global FDI.
Prof. A.E. Loots