Foreign direct investment in electric power plants is a viable economic venture considering that almost all industries are dependent on constant and reliable sources of power. With this in mind, Power for the World Inc. has considered making investments in four African countries. The countries that this global company has decided to invest in include South Africa, Algeria, Kenya, and Nigeria. The reason for choosing these four nations is the fact that they are developing at a rapid rate in terms of industries infrastructure and housing. The company feels that these four nations are ready for transformation from developing countries into developed countries. Apart from the desire to enhance the countries economic growth Power for the World Inc., feel that these nations are ready to embrace renewable sources of electricity. For this reason, this organization needs to consider various factors in each of these nations, which are capable of enhancing or impeding their plan. According to Carpenter and Dunung (2018), the primary factors and aspects that the company needs to consider political and legal factors as well as global business ethics and bribery. The consideration of these factors and aspects as they play out in each of the four countries will be significant in the company’s strategic plan.
Evaluation of South Africa
South Africa is one of the most developed nations in the African continent, thanks to its political and legal policies that encourage foreign direct investments. South Africa's foreign direct investments grew by 446% to $7.1 billion in 2018 while the rest of the world was witnessing a reverse trend (United Nations Conference on Trade and Development, 2019). The report further indicates that South Africa recovered about $4.2 billion after earnings from FDI investments amounting to $ 925 million in 2017. The reason for this rise in foreign direct investment is attributed to the newly elected South African president Cyril Ramaphosa desire to increases FDI in South Africa. According to Villiers (2019), Ramaphosa established that he was keen on increasing earnings from FDI to $100 billion by 2023. This form of political goodwill is crucial as it paves the way for Power for the World Inc. to consider setting up a business in South Africa.
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South Africa is a viable investment hub for this company, considering that its political class is keen on investing in economic sectors, which require reliable energy sources. In particular, President Ramaphosa is considering investing in food processing, petroleum refining information, and communication technologies. Of importance, here is the fact that the South African government is considering investing in renewable energy solutions to meet the country’s energy needs. The needs to invest in renewable energy sources mean that Power for the World Inc. has a chance to explore this opportunity. While there is political goodwill, the company has to deal with inefficient government bureaucracy, which causes frequent changes in regulations and business procedures. These bureaucracies mean that the company will spend a huge chunk of its time and funds dealing with regulatory compliance. Apart from the compliance issues, the company will have to deal with safety and security issues as well as bribery and corruption. According to Price Water Coopers (2019), one in every three companies that operate in South Africa is a victim of cyber terrorism. Additionally, despite putting measures to control corruption, South Africa foreign investors still feel that it is still a top-of-mind issue. Following these findings, Power for the World Inc. needs to ensure that it will put enough security measures to safeguard its data from infiltration.
Evaluation of Kenya
Kenya is another nation that has increased interest in foreign direct investments, as it is the surest way to achieve accelerated economic growth. According to UNCTAD, in 2018, Kenya, which is part of the East Africa region, received $1.6 billion in FDI, which is a 27 per cent increase from 2017. This revenue swelled, considering that this nation has invested in hospitality, manufacturing, oil, gas, and chemicals. According to Ndolo (2017), Kenya is open for FDI as it has many investment opportunities. These opportunities are likely to increase in the future as the IMF predicts that its GDP will grow by about 5.9 per cent by 2021. This unprecedented growth rate means that Kenya is ready for power plant investment by Power for the World Inc.
The government of Kenya has put in place legal and political policies to attract more foreign investors into the nation. According to Ndolo (2017), these policies are supposed to show foreign investments that Kenya has a good environment for doing businesses, as it is easier to acquire business licenses. In spite of these attractive provisions, Kenya continues to grapple with political instability, which makes many investors fear for the safety of their businesses. The political instability is witnessed in electioneering periods, but so far, Kenya has managed to create a conducive environment. Apart from the political instability, Kenya is prone to corruption, something that complicates the ease of doing business. Nonetheless, Power for the World Inc. should consider tapping into this promising and upcoming medium-sized economy. More so, the ruling political class is keen on pursuing the creation and sustenance of political goodwill in the country.
Evaluation of Nigeria
Nigeria is a great nation to consider when focusing on FDI, considering that it is one of the most industrialized and populous nations in Africa. Power for the World stands to gain if it invests in electricity power plants, which could be used to support its industrial and domestic power needs. The reason why Power for the World Inc needs to invest in Nigeria is for the reason that this nation has a great potential for economic growth owing to its abundance in oil, gas and other resources. In spite of this abundance, Nigeria still lags behind other countries when it comes to foreign direct investments. This reason for the disproportionate FDIs is due to ineffective economic policies, including structural adjustment program in the 1980s. Perhaps it is for this reason that while other African nations witnesses a rise in FDI revenue, Nigeria witnessed a decline. According to UNCTAD (2019), in 2018, Nigeria FDI flows were $ 2 billion, which is a 43 per cent decline. The perfect explanation for this drop is overdependence on crude oil, which is susceptible to price fluctuations depending on the prevailing market prices.
Nigeria is one of the most volatile and politically unstable countries in Africa owing to the operations of Boko Haram, a rebel militia group. These insurgents have arisen out of poor government policies, which revolve around the oil and natural gas resources. The Niger delta is the epitome of this form of violence where the rebel militia attacks oil pipelines and rigs. Apart from these attacks, the militia is responsible for kidnapping innocent civilians all in the name of opposing discriminative and oppressive government policies (Enisan, 2017). The policies ride on corruption and embezzlement of oil industry funds, leaving a large section of Nigerians to suffer in poverty. Foreign investors who come to this country must be ready to spend a massive chunk of their investment in protecting their assets and staff. For this reason, it would not be recommendable to think of investing in this country since apart from being insecure, the nation has abundant sources of power. Bringing in more power plants for electricity would make no sense, as this is a started business venture.
Evaluation of Algeria
Algeria, which is located in North Africa, is another potential market for foreign investors as it boasts of significant natural resources. Despite being the third most developed economy in Africa, Algeria continues to lag behind other African nations in foreign directs investments. According to Ghanmi (2017), Algeria FDI income in 2017 was $1.2 billion, which represents a 26 per cent decline from the previous year. While the political class in this country claims that this was the general trend, others do not see it this way. Ghanmi asserts that the reason why Algeria continues to lag in FDI is the fact that it has restrictive political and economic policies. In particular, Algeria is prone to extensive bureaucratic procedures, protectionist laws, and corruption. For instance, Algeria laws establish that Algerian firms have to own up to 51 per cent of any joint venture. Foreign investors are discouraged by this 49-51 rule, as they are afraid that they will not own the majority of the business, which is not profitable. These factors are responsible for keeping foreign investors away as they are not willing to gamble with their investments.
Recommendations
Having evaluated on the four nations that Power for the World Inc. is considering to put up electric power plants, one can recommend the following. South Africa is a good avenue to make foreign direct investment owing to political goodwill, as the current president is keen on growing FDI by 20123. However, the company ought to be wary of their safety due to regular xenophobic attacks, rigid bureaucracies, corruption, and cyber-terrorism. Kenya is a reliable investment country due to political goodwill and the fact that the nation is keen on growing its economy, which will be reliant on reliable electricity supply. This nation has fewer bureaucracies as one can get business licenses easily.
Nonetheless, the company needs to be wary of the rampant corruption and insecurity, which is associated with elections. Although Nigeria has vast resources, it is not advisable to make a foreign investment, as it is volatile owing to corruption, violence, and weak political policies. The decision to invest there would not be viable, as the company would risk the loss of their assets. Finally, although Algeria is restrictive in its economic policies may be a viable country for foreign investment. The political class may be willing to remove the restrictions and companies that take advantage of this de-restriction stand to gain.
References
Carpenter, M. A., & Dunung, S.P. (2018). International Business: Opportunities and Challenges in a Flattening World . Boston, MA: FlatWorld.
Enisan, A. A. (2017). Determinants of foreign direct investment in Nigeria: a Markov regime-switching approach. Review of Innovation and Competitiveness , 3(1), 21-48.
Ghanmi, L. (2018, July 1). Algeria lags behind neighbors in attracting foreign investment. The Arab Weekly. Retrieved on 6 September 2019 from https://thearabweekly.com/algeria-lags-behind-neighbours-attracting-foreign-investment
Ndolo, D. K. (2017). Determinants of foreign direct investments in Kenya (Master’s Thesis). University of Nairobi, Nairobi, Kenya.
Price Water Coopers. (2019). South African insights from a global perspective on factors influencing FDI inflows since 2010 . Retrieved on 6 September 2019 from https://www.pwc.co.za/en/assets/pdf/strategyand-what-foreign-investors-want.pdf
United Nations Conference on Trade and Development. (2019). Foreign direct investment to Africa defies global slump, rises 11% . Retrieved on 6 September 2019 from https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2109
Villers, J. (2019, June 22). Foreign direct investment in SA rocketed by 446% in 2018 - these were the hottest sectors. Business Insider, South Africa. Retrieved on 6 September 2019 from https://www.businessinsider.co.za/foreign-direct-investment-to-sa-grew-by-a-massive-446-in-2018-2019-1
