Foreign Direct Investment and its relationship with Sudan
Link to article: http://www.cmi.no/news/?1137-struggling-sudanese-economy
The article titled “Struggling Sudanese economy” (link given above) discusses the role of Foreign Direct Investment in Sudan’s economy. FDI hit an all time high of 3.5 billion dollars in 2006 after the war in Darfur began. Unfortunately, Foreign Direct Investment in Sudan has been declining ever since that time. The article discusses the role of oil in the Sudanese economy and how oil has such a high demand throughout the world that FDI in some way disregards the lack of stability in the country. Because of the border disputes between Sudan and South Sudan, Sudan has invested in the Gold industry because this country lost 75% of its oil reserves to South Sudan. Lastly, it briefly discusses the ways in which Sudan is attempting to attract more FDI.
Foreign Direct Investment has had an extensive impact on the growth and development of Sudan both positively and negatively. As it states in the article, “Economic uncertainty and political instability, combined with poorly developed infrastructure, have discouraged foreign investments”. Oil has been the major arena for FDI in Sudan. Foreign investments in oil production had an important side-effect. It increased the presence of Asian countries, making Sudan less dependent on the West. It also spurred foreign investments in non-oil sectors. The economy of Sudan boomed significantly with higher oil production and higher oil prices as many foreign economies directly invested (and continue to do so) in their reserves. New economic policies and infrastructure investments in recent years have allowed the economy to expand significantly.
With this information, it shows that FDI has had a positive impact on the growth of Sudan. Unfortunately, with the surplus of foreign investors in oil in Sudan, it has given them too much power so they gain large tax advantages and even subsidies on oil reserves. A subsidy on these oil reserves means that domestic production in Sudan will decrease due to the larger amounts of competition on the international market. When a subsidy is granted for Multi-National Companies (MNCs), S1 shifts downwards by the amount of the subsidy to S1 + subsidy. However, MNC producers increase production to Q3. MNC revenue increases while Sudan’s revenue decreases as shown in the graph. Alas, the MNCs would produce this oil at minimum revenue of b, whereas the Sudanese producers would need minimum revenue of b+g. X represents the inefficiency of Sudanese producers and a misallocation of the world’s resources.
Furthermore, after the war in Darfur began, FDI dramatically decreased due to the political instability between Sudan and South Sudan. The economy has further deteriorated because the two neighboring countries have failed to reach a lasting agreement.
Link to article: http://www.cmi.no/news/?1137-struggling-sudanese-economy
The article titled “Struggling Sudanese economy” (link given above) discusses the role of Foreign Direct Investment in Sudan’s economy. FDI hit an all time high of 3.5 billion dollars in 2006 after the war in Darfur began. Unfortunately, Foreign Direct Investment in Sudan has been declining ever since that time. The article discusses the role of oil in the Sudanese economy and how oil has such a high demand throughout the world that FDI in some way disregards the lack of stability in the country. Because of the border disputes between Sudan and South Sudan, Sudan has invested in the Gold industry because this country lost 75% of its oil reserves to South Sudan. Lastly, it briefly discusses the ways in which Sudan is attempting to attract more FDI.
Foreign Direct Investment has had an extensive impact on the growth and development of Sudan both positively and negatively. As it states in the article, “Economic uncertainty and political instability, combined with poorly developed infrastructure, have discouraged foreign investments”. Oil has been the major arena for FDI in Sudan. Foreign investments in oil production had an important side-effect. It increased the presence of Asian countries, making Sudan less dependent on the West. It also spurred foreign investments in non-oil sectors. The economy of Sudan boomed significantly with higher oil production and higher oil prices as many foreign economies directly invested (and continue to do so) in their reserves. New economic policies and infrastructure investments in recent years have allowed the economy to expand significantly.
With this information, it shows that FDI has had a positive impact on the growth of Sudan. Unfortunately, with the surplus of foreign investors in oil in Sudan, it has given them too much power so they gain large tax advantages and even subsidies on oil reserves. A subsidy on these oil reserves means that domestic production in Sudan will decrease due to the larger amounts of competition on the international market. When a subsidy is granted for Multi-National Companies (MNCs), S1 shifts downwards by the amount of the subsidy to S1 + subsidy. However, MNC producers increase production to Q3. MNC revenue increases while Sudan’s revenue decreases as shown in the graph. Alas, the MNCs would produce this oil at minimum revenue of b, whereas the Sudanese producers would need minimum revenue of b+g. X represents the inefficiency of Sudanese producers and a misallocation of the world’s resources.
Furthermore, after the war in Darfur began, FDI dramatically decreased due to the political instability between Sudan and South Sudan. The economy has further deteriorated because the two neighboring countries have failed to reach a lasting agreement.