Durham E-Theses The Impact of Government Policies on Foreign Direct Investment in Developing Countries: the Case of Sudan ABDALLA, MOHAMED,NOUR,MOHAMED,OSMA How to cite: ABDALLA, MOHAMED,NOUR,MOHAMED,OSMA (2014) The Impact of Government Policies on Foreign Direct Investment in Developing Countries: the Case of Sudan, Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/10861/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk 2 Durham University The Impact of Government Policies on Foreign Direct Investment in Developing Countries: the Case of Sudan By Mohamed Nour Mohamed Osman Abdalla Thesis Submitted in Fulfilment of the Degree of Doctor of Philosophy at Durham University The School of Government and International Affairs Institute of Middle Eastern and Islamic Studies University of Durham, UK 2014 Abstract Currently, policies implemented by governments in developing countries are dominated by the view that Foreign Direct Investment (FDI) is necessary for development and that, without FDI, there would be no growth. They also believe that FDI brings efficient management of resources, new technology, a culture of competition, and access to global markets. FDI is considered the best source of development finance on the grounds, among others, that it is self-liquidating. Obviously, Sudan is not an exception, with policies of economic liberalisation, policies of economic restructuring, attention to the infrastructure, privatisation, and establishment of the capital market, and other measures to attract FDI. The aim of this research is to explore the impact of policies followed by the host country on the amount of inward FDI and the impact of FDI on the economic development of the host country. It is important to focus on the theoretical foundation of the FDI phenomenon and its relevance in explaining FDI determinants. In conducting this research, a combination of qualitative and quantitative methods have been employed. A case study approach has been adopted to investigate the impact of the measures taken by the government of Sudan to encourage FDI. As well as investigating the impact at the macroeconomic level, the study focuses on the three sectors most affected by FDI: oil, real estate and telecommunications. Oil production and exports are of vital importance for Sudan’s economy, and hence the government has focused much of its effort on this sector, which is dominated by Chinese companies. Many of the issues faced were similar to those experienced elsewhere in Africa where China is the source of FDI. The inflows to the real estate sector were mainly from the Gulf, with developers seeking to build residential accommodation and commercial property which would appeal to Sudanese expatriates returning from work there. Telecommunications, in particular mobile services, have brought about a social revolution in Sudan, as well as elsewhere in Africa. The government’s aim was to open the market up, with competition making phone tariffs more affordable. Overall, government policies to encourage FDI have been successful but it is evident that different policies are needed for each sector. i Table of Contents Abstract ........................................................................................................................... i Table of Contents ........................................................................................................... ii List of Tables and Figures ............................................................................................. ix List of Appendices ....................................................................................................... xii List of Abbreviations .................................................................................................. xiii Declaration .................................................................................................................. xvi Dedication .................................................................................................................. xvii Acknowledgement .................................................................................................... xviii Chapter 1: INTRODUCTION ........................................................................................ 1 1.1 BACKGROUND ................................................................................................ 1 1.2 AIMS AND OBJECTIVES OF THE RESEARCH AND RESEARCH QUESTIONS ............................................................................................................ 2 1.3 SIGNIFICANCE OF THE RESEARCH ............................................................ 3 1.4 RESEARCH METHODOLOGY ........................................................................ 4 1.5 ORGANISATION OF THE THESIS ................................................................. 6 Chapter 2: FOREIGN DIRECT INVESTMENT IN THEORY .................................. 10 2.1 INTRODUCTION ............................................................................................ 10 2.2 DEFINITION OF FDI AND MULTINATIONAL COMPANIES .................. 11 2.3 FDI: GROWING IMPORTANCE .................................................................... 13 2.4 FDI: RECENT TRENDS .................................................................................. 17 2.4.1 Size ............................................................................................................ 17 2.4.2 Sectoral Configuration .............................................................................. 18 2.4.3 Spatial Distribution ................................................................................... 19 2.4.4 The Increasing Share of Developing Countries ........................................ 20 2.4.5 The Emergence of Developing Economies as Home Countries ............... 23 2.5 THE OBJECTIVES OF FDI ............................................................................. 24 2.6 THE PARAMETERS OF FDI .......................................................................... 25 2.6.1 Market Size and Possibility of Growth ..................................................... 26 2.6.2 Stability of Macroeconomic Policy .......................................................... 26 2.6.3 Implementation of Economic Reforms ..................................................... 27 ii 2.6.4 The Legal and Organisational Framework of Investment ........................ 27 2.6.5 Convenient Infrastructure ......................................................................... 28 2.6.6 Development of Manpower and Support of Capabilities of Technology Development ...................................................................................................... 28 2.6.7 Finance and Monetary Incentives ............................................................. 28 2.6.8 Strengthening Regional Economic Cooperation ....................................... 29 2.7 RESTRICTIONS BY DEVELOPING COUNTRIES TOWARDS FDI .......... 29 2.7.1 Restrictions ............................................................................................... 30 2.7.2 Tax incentives ........................................................................................... 31 2.7.3 Hindrances to foreign investment and arbitration ..................................... 31 2.8 THE THEORY OF FOREIGN DIRECT INVESTMENT ............................... 34 2.9 THE MOST IMPORTANT THEORIES OF FDI ............................................ 39 2.9.1 Classical Theory ........................................................................................ 39 2.9.2 Modern Theory ......................................................................................... 40 2.9.3 The Comparative Advantage Theory ........................................................ 42 2.9.4 Determinants of FDI ................................................................................. 43 2.10 FDI THEORIES: CRITICAL ANALYSIS .................................................... 45 2.11 THE LITERATURE REVIEW ....................................................................... 48 2.12 LITERATURE REVIEW OF CHINESE INVESTMENT IN SUDAN ......... 52 2.13 LITERATURE REVIEW OF THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH ..................................... 55 2.14 CONCLUSION ............................................................................................... 61 Chapter 3: FOREIGN DIRECT INVESTMENT: EMPIRICAL EVIDENCE ............ 63 3.1 INTRODUCTION ............................................................................................ 63 3.2 FDI GEOGRAPHICAL DISTRIBUTION ....................................................... 64 3.2.1 FDI Spatial Distribution ...........................................................................