Countries of the world require financial capital for economic growth and development. It lubricates the wheels of the economy for development. The developed countries of the world held on to continuous capital investments in the economy and these resulted in rapid economic growth. The case of most developing countries is different. They do not have sufficient capital to be invested in their economy; therefore, they need to depend on the external hands of the developed countries. The research question is, What is the prospect and bane of foreign direct investment on the economy? The theoretical framework of dependency theory is used to analyse the prospect and bane of foreign direct investment. The methodology adopted utilises data from the World Bank, which is analysed using descriptive techniques. The chapter concludes that over dependent on the foreign direct investment will make the recipient countries as an extension of the donor countries.
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All countries of the world need a strong capital base for virile economic growth and development. Capital is an essential ingredient which lubricates the wheels of the economy to achieve rapid growth. A country with huge sums of such capital base will possess a strong economy which will enable it to explore other channels of development while a country with little or poor capital base will possess a weak economy which will be handicapped to devilled into major developmental enterprises that will lead to economic, social, and political growth. Capital is therefore necessary for every country to lubricate the wheels of the economy for development.
It is obvious that the developed countries of the world held on to continuous capital investments in the economy and this results in rapid economic growth in most cases in Europe, America and a few countries in Asia and Latin America. The case of most developing countries such as those in Africa, Asia, the Middle East, and Latin America is different. There is little to invest as capital and the little is mostly diverted to patronage of patrons and clients’ relationships (Aluko 2017). This has made such countries depend on the mercies and moral reasoning of the developed countries to send in foreign capital for their local development. These occur in different forms such as economic loans, gifts, charities, and expertise-advised investments, especially in the form of foreign direct investments (FDI).
Foreign direct investment is mobilised and scouted for by many developing countries. This includes the direct investment by an external country in an agreed or predetermined sector of the recipient country's economy to achieve a certain end which might be different to both the donor and the recipient countries at the same time. These capital investments are needed for the economy to strive from a little stage to a developed stage. Foreign direct investment like most loans from developmental institutions such as the World Bank, International Monetary Fund (IMF) and other donor agencies is strictly attached to some terms and conditions. These terms and conditions must be met and obeyed to be in the good book of the donor agencies.
In most cases, these conditions might be unfavourable to the welfare of the country's economic development in the long run. Some of the unfavourable imposed policies by the donor institutions include stiff tax regimes, privatisation and commercialisation of major assets of the state, deregulation of major sectors and devaluation of the country’s currency among other policies. The recipient countries do not have many choices due to their conditions of lack of sufficient capital to be invested in their economy therefore they need to depend on the external hands of the developed countries.
The research question this Chapter seeks answer to is what is the prospect and bane of foreign direct investment on the recipient countries’ economy? It is widely believed that the sole purpose of an investor in an investment is to make a gain but should this be to the detriment of the recipient communities? The benefits that most recipient nations harnessed, did it commensurate with the visible and the invincible, known and unknown losses? The theoretical framework of dependency theory is used to analyse the prospect and bane of foreign direct investment. The methodology adopted utilises data from the World Bank which was analysed using descriptive techniques.