News in Mali
Article: MALI: Land Grab Fears Linger
Link: http://www.irinnews.org/report/87284/mali-land-grab-fears-linger
Summary
The article Mali: Land Grab Fears Linger by IRIN News discusses the fears that Malians experience towards foreign direct investment (FDI). Mali has approved long term leases for foreign investors to help develop more than 395,000 acres of land. However, local farmers feel that their businesses is being taken over by these foreign investors. The Malian government argues that foreign investment is necessary for the growth of the agricultural sector. While Mali does need FDI, small scale producers feel that they are losing business to the large scale businesses of foreign producers. Small, local producers have no desire to work for industrial agriculture producers, preferring to stay with their small scale production. However, the government made deals with these multinational corporations (MNCs) in order to improve the land and resources available, not chase out small producers. Mali is in need of more resources and MNCs have the ability to improve upon the land with the resources that they bring with them, like technology and research and development. While Libya is the main foreign investor, there are concerns as to whether or not their intentions are good. The main question for Mali is how much of the harvest remains domestically owned rather than going to the country of origin of the MNC (in this case, Lybia).
Analysis
Foreign Direct Investment (FDI) is long term investment by private multinational corporations (MNCs) in countries overseas. MNCs can build new plants or expand on their existing facilities in foreign countries. This is called greenfield investment and is shown through the current situation in Mali. Multinational corporations in Libya are building plants and expanding on existing ones in Mali. They may also buy existing firms in Mali. The Malian government sees FDI as beneficial to the country of Mali because MNCs come with many potential positive factors. However, the Malian people see FDI as a negative due to the potential negative factors. So, while the government views FDI as helpful to develop the agricultural land for producers, the Malian people see the potential threat of Libyans taking the resources for themselves.
The graph below shows an increase in aggregate demand. This is a result of MNCs buying existing companies and injecting foreign capital into the market. More foreign capital in the economy leads to the increase in aggregate demand. As MNCs produce goods that are new to the domestic market of the developing country, consumers move to buy up the product. This will also increase aggregate demand because consumers are demanding more of the new product. As seen in the graph below, the increase in aggregate demand will move along the supply curve so that demand is met. Real output or GDP increases from Y1 to Y2, leading to economic growth. This will also cause an increase in employment in order to meet the increased level of production, which will lead to an increase in incomes. The shift in demand also increases the price level from point P1 to P2, and with the increase in income consumers can continue to buy goods and services.
One potential positive to FDI is that MNCs provide employment and education in order to improve the skills in the work force. As MNCs work to improve the level of production and efficiency in a developing nation's economy, it is beneficial to provide the opportunity for more jobs to domestic workers. It is also beneficial to provide proper training so that those jobs can be carried out. However, a major negative to FDI is that some MNCs do not fulfill this potential benefit. They may end up hurting employment by bringing in their own management teams and only using cheap labor for basic production, providing little training. So, while MNCs do help economic growth by allowing for more production and efficiency, they do not allow for development because they do not always provide more jobs, and when they do workers receive little pay and work in poor conditions.
MNCs also provide a greater access to research and development, technology, and marketing expertise. This is used to enhance industrialization, leading to economic growth. MNCs also allow for a more efficient allocation of resources. However, some MNCs may take advantage of their power and enter a developing nation only to strip them of a certain resource and leave the country. This causes a loss of profit from domestic producers to foreigners. This will hurt economic development because the developing nation is losing potential profit, along with valuable resources.
Therefore, there are many pros and cons to FDI and MNCs. Both the Malian government and the Malian people are right to view the effects of FDI through a positive and negative lens. While FDI has the potential to improve Mali's agricultural land for producers, it also has the potential to give Libya the power to extract Mali's resources for their own gain. Overall, FDI tends to work towards economic growth rather than economic development because of the negative factors that stand in the way. Gaining economic development from foreign direct investment depends on the type of investment and the ability of the Malian government to appropriately regulate the behavior of the multinational corporations and use the benefits of the investment to achieve development objectives.
Link: http://www.irinnews.org/report/87284/mali-land-grab-fears-linger
Summary
The article Mali: Land Grab Fears Linger by IRIN News discusses the fears that Malians experience towards foreign direct investment (FDI). Mali has approved long term leases for foreign investors to help develop more than 395,000 acres of land. However, local farmers feel that their businesses is being taken over by these foreign investors. The Malian government argues that foreign investment is necessary for the growth of the agricultural sector. While Mali does need FDI, small scale producers feel that they are losing business to the large scale businesses of foreign producers. Small, local producers have no desire to work for industrial agriculture producers, preferring to stay with their small scale production. However, the government made deals with these multinational corporations (MNCs) in order to improve the land and resources available, not chase out small producers. Mali is in need of more resources and MNCs have the ability to improve upon the land with the resources that they bring with them, like technology and research and development. While Libya is the main foreign investor, there are concerns as to whether or not their intentions are good. The main question for Mali is how much of the harvest remains domestically owned rather than going to the country of origin of the MNC (in this case, Lybia).
Analysis
Foreign Direct Investment (FDI) is long term investment by private multinational corporations (MNCs) in countries overseas. MNCs can build new plants or expand on their existing facilities in foreign countries. This is called greenfield investment and is shown through the current situation in Mali. Multinational corporations in Libya are building plants and expanding on existing ones in Mali. They may also buy existing firms in Mali. The Malian government sees FDI as beneficial to the country of Mali because MNCs come with many potential positive factors. However, the Malian people see FDI as a negative due to the potential negative factors. So, while the government views FDI as helpful to develop the agricultural land for producers, the Malian people see the potential threat of Libyans taking the resources for themselves.
The graph below shows an increase in aggregate demand. This is a result of MNCs buying existing companies and injecting foreign capital into the market. More foreign capital in the economy leads to the increase in aggregate demand. As MNCs produce goods that are new to the domestic market of the developing country, consumers move to buy up the product. This will also increase aggregate demand because consumers are demanding more of the new product. As seen in the graph below, the increase in aggregate demand will move along the supply curve so that demand is met. Real output or GDP increases from Y1 to Y2, leading to economic growth. This will also cause an increase in employment in order to meet the increased level of production, which will lead to an increase in incomes. The shift in demand also increases the price level from point P1 to P2, and with the increase in income consumers can continue to buy goods and services.
One potential positive to FDI is that MNCs provide employment and education in order to improve the skills in the work force. As MNCs work to improve the level of production and efficiency in a developing nation's economy, it is beneficial to provide the opportunity for more jobs to domestic workers. It is also beneficial to provide proper training so that those jobs can be carried out. However, a major negative to FDI is that some MNCs do not fulfill this potential benefit. They may end up hurting employment by bringing in their own management teams and only using cheap labor for basic production, providing little training. So, while MNCs do help economic growth by allowing for more production and efficiency, they do not allow for development because they do not always provide more jobs, and when they do workers receive little pay and work in poor conditions.
MNCs also provide a greater access to research and development, technology, and marketing expertise. This is used to enhance industrialization, leading to economic growth. MNCs also allow for a more efficient allocation of resources. However, some MNCs may take advantage of their power and enter a developing nation only to strip them of a certain resource and leave the country. This causes a loss of profit from domestic producers to foreigners. This will hurt economic development because the developing nation is losing potential profit, along with valuable resources.
Therefore, there are many pros and cons to FDI and MNCs. Both the Malian government and the Malian people are right to view the effects of FDI through a positive and negative lens. While FDI has the potential to improve Mali's agricultural land for producers, it also has the potential to give Libya the power to extract Mali's resources for their own gain. Overall, FDI tends to work towards economic growth rather than economic development because of the negative factors that stand in the way. Gaining economic development from foreign direct investment depends on the type of investment and the ability of the Malian government to appropriately regulate the behavior of the multinational corporations and use the benefits of the investment to achieve development objectives.