THE EFFECT OF FDI ON THE SOCIO-ECONOMIC DEVELOPMENT OF MOLYKO

Abstract

The research is to examine how FDI has contributed to the social and economic development of Molyko.  FDI are those investments made by foreigners into another country especially in Molyko. this investment can be done in a company or individual levels such as provision a store, real estate, farming, schools, hotels, and documentation.

Also, this study went forward to access how this business can lead to the development of Moklyko. The researcher uses several research methods to collect data. These include a quantitative survey targeting 50 representatives of the types of businesses in Molyko and their source of capital and also to assess their viewpoint on the subject matter, semi-interview with the businessmen to assess the constraints and recommendations of the issue.

The researcher also uses observation techniques and reviews of contents of documentation relevant to the subject matter. Data were collected in the month of June 2021. Overall, the finding of the study review that FDI does not play a significant role in the socio-economic development of Molyko.

Research shows that most enterprises, infrastructures such as hostels, hospitals, and schools and social amenities such as the MOLYKO OMINISPORT stadium do not depend on FDI. equally; poverty alleviation does not depend on FDI since most of the people use their own capital to start the business in which others are employed and the employees confess that the employment has improved not only their income but skills.

The study shows that the major constraint discouraging foreign investors are high taxes and expensive rental bills. Key suggestion was tax reduction of those who want to start up business and also on land purchases in Molyko.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company. However, FDIs are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.

Foreign direct investments are commonly made in open economies that offer a skilled workforce and above-average growth prospects for the investor, as opposed to tightly regulated economies. Foreign direct investment frequently involves more than just a capital investment. It may include provisions of management or technology as well.

The key feature of foreign direct investment is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business. Foreign direct investments are commonly made in open economies that offer a skilled workforce and above-average growth prospects for the investor, as opposed to tightly regulated economies.

Foreign direct investment frequently involves more than just a capital investment. It may include provisions of management or technology as well. The key feature of foreign direct investment is that it establishes either effective control of or at least substantial influence over the decision-making of a foreign business.(Chen and Scott, 2021)

Foreign direct investments are commonly categorized as being horizontal, vertical, or conglomerate. A horizontal direct investment refers to the investor establishing the same type of business operation in a foreign country as it operates in its home country, for example, a cell phone provider based in the United States opening stores in Cameroon.

A vertical investment is one in which different but related business activities from the investor’s main business are established or acquired in a foreign country, such as when a manufacturing company acquires an interest in a foreign company that supplies parts or raw materials required for the manufacturing company to make its products.

A conglomerate type of foreign direct investment is one where a company or individual makes foreign investment in a business that is unrelated to its existing business in its home country. Since this type of investment involves entering an industry in which the investor has no previous experience, it often takes the form of a joint venture with a foreign company already operating in the industry.( Chen and Scott 2021).

There are many ways in which FDI benefits the recipient nation. These include the Creation of jobs. It is the most obvious advantage of FDI. It is also one of the most important reasons why a nation, especially a developing one, looks to attract FDI. Increased FDI boosts the manufacturing as well as the services sector.

This in turn creates jobs and helps reduce unemployment among the educated youth – as well as skilled and unskilled labour – in the country. Increased employment translates to increased incomes, and equips the population with enhanced buying power.  This boosts the economy of the country.

Also, it brings about human resource development. This is one of the less obvious advantages of FDI. Hence, it is often understated. Human Capital refers to the knowledge and competence of the workforce. Skills gained and enhanced through training and experience boost the education and human capital quotient of the country.

Once developed, human capital is mobile. It can train human resources in their companies, thereby creating a ripple effect.  FDI enables the transformation of backward areas in a country into industrial centres. This in turn provides a boost to the social economy of the area. The Hyundai unit at Sriperumbudur, Tamil Nadu in India exemplifies this process.  FDI also brings about capital and technology.

Recipient businesses get access to the latest financing tools, technologies, and operational practices from across the world. Over time, the introduction of newer, enhanced technologies and processes results in their diffusion into the local economy, resulting in enhanced efficiency and effectiveness of the industry.

Moreover, it also Increase in Exports.  To add, the constant flow of FDI into a country translates into a continuous flow of foreign exchange. This helps the country’s Central Bank maintain a comfortable reserve of foreign exchange. This in turn ensures stable exchange rates. Equally, Stimulation of Economic Development.

This is another very important advantage of FDI. FDI is a source of external capital and higher revenues for a country. When factories are constructed, at least some local labour, materials, and equipment are utilized.

Once the construction is complete, the factory will employ some local employees and further use local materials and services. The people who are employed by such factories thus have more money to spend. This creates more jobs.

These factories will also create additional tax revenue for the Government that can be infused into creating and improving physical and financial infrastructure.  And lastly, the Creation of a Competitive Market by facilitating the entry of foreign organizations into the domestic marketplace, FDI helps create a competitive environment, as well as break domestic monopolies.

A healthy competitive environment pushes firms to continuously enhance their processes and product offerings, thereby fostering innovation. Consumers also gain access to a wider range of competitively priced products.(Chen and Scott 2021)

Development is widely referred to as a specified state of growth or an event that constitutes a new stage under changing circumstances. Generally, development describes a good change to many things. But how do we know which change is good or best for the purpose? In this regard, we can understand development in several ways.

For example, development as a historical process refers to social change that occurs over extended periods of time due to inevitable processes, such as communication and capitalization, which are the inevitable outcomes of progress. Secondly, if we see development as an action, it gives us a different perception about the way it should be operated. As an action, development refers to the deliberate action to change things for the better.

Development is a process that creates growth, progress, positive change, and the addition of physical, economic, environmental, social, and demographic components (Society for International Development Israel, 2018). The purpose of social development is to change the level and the quality of life of the population and the creation or expansion of local income and employment opportunities without damaging the resources of the environment (Society for International Development Israel, 2018).

Development can be seen and explained in many dimensions, such as economic, political, and social development. Economic development is aimed at improving the well-being and quality of life of a nation, region, or local community, according to targeted goals and objectives (Society for International Development Israel, 2018).

Also, development entails sustainability. Though sustainable development is a major challenge to development actors, it can be obtained, and it includes social, economic, and environmental factors. The United Nations World Commission on Environmental Development (WCED) argues that development can only be considered sustainable if it addresses the needs of the present without endangering the capabilities of future generations to meet their own needs (Society for International Development Israel, 2018).

For there to be sustainable development, equitability and balance must be put into account. That is, development is continual in growth if it creates a balance between the interests of different groups of people within the same generation and among generations. And this balance must be attained in the various areas of social, economic, and environmental growth (Society for International Development Israel, 2018).

Throughout the years, professionals and various researchers have developed a number of definitions and emphasis for the term development. Amartya Sen, for example, developed the “Capability approach” which defines development as a tool enabling people to reach the highest level of their ability through granting freedom of action; that is, freedom of economic, social and family actions (Society for International Development Israel, 2018).

Globally there has been a remarkable growth in the interest of social-economic development at local, national, and international levels. Different socio-economic projects and programs have quite distinct implications for socio-economic development.

Economic development is the process of structural transformation with continuous technological innovation and industrial upgrading, which increase labor productivity and accompanied improvements in infrastructure and institution, which reduce transaction costs, (advance in the theory and practice of smart specialization 2017).

National organisations such as neighborhood reinvestment corporation(1978 ), and the local initiative support corporation(1980) have built extensive works in which they help provide financing for social development programs in urban and rural areas.

In Africa, amongst the earliest community development approaches were those developed in Kenya and British East Africa during 1930 development approaches are international. Development practitioners have over the years developed a range of Approaches for working within local areas.  Development approaches is recognized internationally.

These approaches have been acknowledged as significant for local social, economic, cultural, environmental and political development by the United States, the organisation for economic co-operation and development, the World Bank, and Europe union.

Cameroon is a low-middle country. It is endowed with rich natural resources, including oil and gas, mineral ores, and high-value species of timber, and agricultural products, such as coffee, cotton, cocoa, maize, and cassava. The poverty reduction rate is lagging behind that is the overall number of poor increase by 12% to 8.1 million between 2007 to 2014(World Bank). The world banks country economic memorandum, issued in April 2017, notes that if Cameroon is to become upper-middle-income country by 2035, it will have to increase productivity and unleash the potential of its private sector (World Bank).

Molyko is a village in Cameroon which has now become an urban center due to the activities taking place in this area. These activities such as agriculture, educational institution, and businesses have attracted many people in this area both locally and internationally. The natural environment of Molyko has attracted so many foreign investors in Molyko. This has led to poverty alleviation, increase infrastructures and social amenities in this area and it is now the Epie center of development of Buea municipality.

1.2 Statement of Problem and Justification of the Study

The attitude towards foreign direct investment (FDI) has changed considerably over the last couple of decades, as most countries have liberalized their policies to attract investment from foreign investors.

Although some FDI promotion efforts are probably motivated by temporary macroeconomic problems such as low growth rates and rising unemployment, there are also more fundamental explanations for the increasing emphasis promotion in recent years.

In particular, it appears that the globalization and regionalization of the international economy have made foreign incentives more interesting and important for national governments. Trade liberalization be it globally, through GATT and INTO, the form of EU, NAFTA and other regional agreements has led to increasing market integration and reduced the importance of market size as a determinant of investment location.

Hence, even a small country may now come for FDI, given that it can provide a sufficiently attractive incentive package (Blomstrom M, Kokko A, Mucchielli J 2003).

Developing countries especially in Africa recently considered the role of foreign direct investment (FDI) as essential to their development. FDI is a development tool given that it provides the capital directly needed by these countries and which is necessary to increase investment and competition in the industries and the host countries while improving the productivity of local firms through the adoption of more effective technology or investing in human and/or physical capital.

FDI also improves the management capacity of local firms (Bellon and Govia, 1998). FDI accounts for over 50% of GDP in some countries of the CEMAC region (WDI, 2012). (Ongo 2014)

Foreign direct investment has become a cornerstone for both governments and corporations. After the Cameroon government realized that domestic investment (public and private investment) was not sufficient to reach the level needed to meet the fast-growing population and socio-economic development, the government, therefore, seek foreign direct investment to improve on the level of investment.

More so, the growing edge for the government to improve economic growth, create jobs, and socio-economic development has encouraged foreign direct investors in Molyko-Buea. This foreign direct investment plays an extremely important role in Molyko Buea. Firstly, it has to make Molyko an epicenter (take-off point) when it comes to foreign investment in Buea municipality, thereby extending this business to other parts of Buea, given them a Prema face look.

Molyko is congested with investments of various kinds such as real estate, education, health care, and documentations.  All these investments can’t be owned and controlled by local enterprises. Therefore, we will have to find out the various enterprises owned and controlled by foreigner. All this investment has led to the transformation of Molyko from the rural area that it was in decades to an urban center.

Also, has the transformation of this area led to poverty alleviation in this area. Mindful of this socio-economic development, the fundamental question is “To what extent has foreign direct investment contributed to socio-economic development in Molyko – Buea.”

1.3. Research Questions

The main Research Question of this study is

Does foreign Direct Investment play a significant role in the socio-Economics development of Molyko?

The specific research questions include:

1. To what extent does FDI contribute to the development of enterprises, infrastructures, and social amenities in Molyko?
2. How is FDI contributing to alleviate poverty in Molyko?
3. Are conditions in Cameroon in general and Molyko in particular favourable to FDI in Molyko?

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