Factors Influencing FDI: Vodafone Ghana Economic Growth (Research Paper Sample)

Factors Influencing FDI: Vodafone Ghana
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Factors Influencing FDI: Vodafone Ghana
Introduction
In the contemporary environment, telecommunications industry is a key-holder for productivity across multiple societies and economies. The telecom multi-corporations are not only vital contributors to the economic activities of nations but also to the growth of the adopting countries (Simionescu, 2015, p.125). Recently, developing countries witnessed tremendous transformations in the macroeconomic sector resulting from its impacts on their particular economies. The emerging and booming economies of Ghana have received a significant impact from the rapidly growing telecommunication industry. Globally, international trade and FDI serve as the twin engines of prosperity in the world economy. The nominal GDP of the world has trebled since the 1980s as the merchandise trade expanded six-fold while FDI stocks have experienced a multiplier effect of 20. An analysis of econometrics suggests that there exist a 10% increase in a country’s FDI trade compared to the GDP (Simões et al., 2015, p.48). Contextually, the world’s income has grown due to increased commerce. Due to the practice of FDI, the developed countries’ incomes have grown for approximately 1.1% faster per year over the past decade. Similarly, the third world nations’ income has been remarkable growing at a rate of 1.4% per year. Indicatively, the world’s GDP is great than 20% in the contemporary context compared to some few years ago due to the enormous expansions experienced in the FDI involvement. In this regard, FDI has conveyed better wages, improved technology, and overall development (Aydin & Zortuk, 2014, p.235). Hence, it is valuable to study the factors that influence foreign direct investments and their importance toward the economic growth in the African context.
In Africa, reports hold that mobile subscribers were fewer compared to other countries such as Asia and the United States. For instance, towards the end of 2003, the telecommunications industry had only 6.1 mobile subscribers for 100 residents in Africa. It compares to 3 fixed subscribers for every 100 phone owners (Al-Sadig, 2013, p.1267). Today, the telephony industry in Africa has many users with almost every adult owning a phone. The situation has accentuated due to the growth of infrastructure that favour mobile industries. For example, the expansion of the mobile network coverage has become extensive in Western Africa where coverage has improved greatly (Batuo, 2015, p.313). Acknowledgments to the telecommunications industry point out that a spread leads to improved growth and the customers’ well-being in the developing world. In essence, the roll out of telecommunication bolsters growth as there is advanced communication among the trading partners (Gantz, 2014, p.6). Moreover, telecoms indicate positive associations between quality and teledensity of life among its users.
According to the UNCTAD, Ghana ranks the seventh regarding the reception of FDIs in Africa toward the end of 2010. In perspective, the year 2012 the country recorded more than 95 novel projects in the first quarter instigated by foreigners. In this respect, mobile telephony has become of the fastest growing business industries in Ghana (Cozza, Rabellotti & Sanfilippo, 2014, p.8). Apparently, there exist six operational service providers including MTN (Sancom), Airtel (Bhartu Airtel), Tigo (Millicom), Vodafone, Globacom, and Expresso. Consequently, more than 12 million subscribers who use mobile phones exist and the numbers will increase with the introduction of 3 Generation services.
The investment climate in Ghana
The need for an attraction of foreign direct investors into the economy of Ghana has been of focus of various policy objectives steered by the ERP (Šimelytė, 2013, p.96). The country’s interest to attract the foreign direct investors encapsulates demonstrations where investment missions engage abroad and hosting of major international events. Establishment of new laws aims at encouraging foreign investors alongside private sector activities that replaced stifled investments. As a mandate, the foreign needs to satisfy provisions provided in the investment act and the sector-specific law. A good example is telecommunication companies such as Vodafone Group and others need to comply with the host country laws and those that are specific to the telecommunications industry (Bonetti & Masiello, 2014, p.5). Thorough screening has ceased since the enactment of GIPC Act thus promoting both foreign and domestic investments in Ghana enabling telecommunication multinationals like Vodafone Group to invest in the region. Furthermore, the only pre-condition prevailing for foreign investment if to satisfy a financial requirement.
The private sector department of the ECOWAS came into being in 2007, and it operates under the supervision of macroeconomic policies commissioner. The department has an obligation of promoting regional business climate, joint ventures, small and medium sized corporations besides cross-border investments (Bode & Nunnenkamp, 2011, p.351). Thence, various companies have taken the opportunity to utilize this chance and contribute toward the achievement of a dynamic, competitive, and diversified regional economy. These factors are preferably favoring internal and external investors. Vodafone Group has the potential to exploit the emerging market in Ghana as its strategy fits the current fixed network, and it is a huge telecommunication company in West Africa. For instance, the FDI magazine stated that a UK-based giant Vodafone Group had stepped its advances into Africa and the Middle East markets. These markets have structures to streamline costs and bolster further expansions. However, FDI flows into a region depend entirely on the presence of several factors; multinational corporations are profit-oriented and pursue investment climates with good venture returns besides relative stability and lesser risks against the loss of capital. Such factors that will facilitate the inflow of FDIs encompass market sizes and potentials for growth, clustering effects, exchange rate valuation, and political together with macroeconomic stability (Baek, K, & Qian, 2011, p.61). Conversely, those factors that hinder successful multinational corporates include resource base, regulatory frameworks, infrastructural conditions, and global factors.
Frameworks of Foreign Direct Investments
Foreign Direct Investment (FDI) occur due to globalization (Asokan, 2014, p.67) For instance, when a firm operating in country A decides to buy shares of a foreign corporation or settles to start a fresh production facility in another country, say B. The FDIs come in three types encompassing Horizontal, Platform, and Vertical. Horizontal FDI occurs when firms duplicate same business ventures at the same value chain stage in other countries. For example, when a Ghanaian retailer opens a store in Nigeria to exploits its market. Vertical FDI exists when firms locate varied stages of productions in different countries with an intention to exploit opportunities. For instance, a case where Apple Inc. produces iPhones in China markets to exploit the low labour costs (Andoh-Baidoo, Osatuyi & Kunene, 2014, p.24). Further, the Platform FDIs occurs if investments from a firm enter another country with an aim of exporting to the other nations. A demonstrable example is that of an American company, Ford, which produces its items in England to export them to the European Union based on favourable trade policies. Additionally, corporations engage in FDI activities when their products reach a maturity stage pertinent to their lifecycle. Before the firms venture into foreign trade, they examine various factors like strong economic growth (Geamănu, 2015, p.223). Based on potentialities in economic growth, firms such as Vodafone Group have invested in the telecommunications industry in Ghana to exploit the potential markets available.
OLI Framework
In this context, there is an analysis of FDI patterns for various industries and nations. OLI is an acronym for Ownership, Locational Advantages, and Internationalization. Ownership is how secure the assets of the multinational firm would be if it will venture into foreign investment. Locations advantages determine the cheapness of entering into an FDI as opposed to exports due to factors including low wages and availability of raw materials. Correspondingly, internationalization advantages consider whether it will be better to have the production facilities as compared to licensing or entering into a joint venture. John Dunning postulated the framework that had proved to a fruitful way of reasoning concerning the multinational enterprises. Furthermore, it has inspired numerous applied works in the field of economics besides international business (Forte & Santos, 2015, p.25). The framework provides for categorization of recent empirical and analytical research on FDI and provides a lens through which concerned persons can have a review of its results while noting the issues it neglects.
Ownership
The ownership advantages form a level ground to explain the existence of multinational enterprises (Kang, 2012, p.144). A primary conception is that companies are collections of their assets, and candidate multinational corporations have a high-than-average level of assets characterized by internal public goods. Such assists apply across regions without declining their effectiveness. The examples include managerial structures, product development, marketing skills, and patents. However, there must be modeling of such factor to be in line with single index cognizant of the firm’s productivity. Firms that engage in low-productivity have limitation...