Taskie !How to get task done well!

Risk and Investment in the Global Telecommunications Industry (2)Filed Under: General

Productivity growth can be influenced by a number of different factors or drivers. Broadly speaking, these factors include macroeconomic policy, regulatory environment, innovation, industrial structure, human capital, management strategies and policies, trade, and investment. For large industrialized countries like those in the G7 or G10, economic performance depends in large part on coordinating the actions between these various drivers to enhance productivity. The shortage of the necessary resources to accomplish this objective is not that large of a problem. For developing countries, the situation is often much more difficult because, in addition to successfully coordinating the actions of the various drivers, developing countries also face a shortage of financial capital. As a result, foreign investment is becoming an increasingly important driver behind productivity growth in developing countries.

Business growth and the overall wealth generation process are hindered in developing economies by the lack of affordable credit. This is particularly true in the IT industry. New firms starting out in IT are often very small and face high start-up costs. These firms usually have no source of financial capital to draw from, which means that they need to seek external funding. In developing economies, the selection of financial instruments available to start up companies is very limited (Chong and Micco, 2003). The source of
financial capital -where it exists- tends to be scarce and commands a very high price. This problem is particularly acute in South America and Africa where domestic savings rates are much lower than in other developing parts of the world. As a result, foreign investment into developing countries can provide a much-needed source of financial capital.

Financial capital is probably the scarcest commodity in the world. More people demand financial capital at any one time than are able to supply it. Financial capital is scarce, mobile and very sensitive to economic and political conditions. Consequently, those who have financial capital to invest are very selective about where they invest. Domestic and global investors typically prefer investments with high returns and low risks. Risk management is, therefore, an important component of global investing. Savings is the only source of financial capital and the relationship between savings, investment and economic growth has been well documented (Miles and Scott, 2002). The role that foreign direct investment plays in aiding a country’s economic development has also been extensively studied.

Taken From : Digital Economy – Impacts, Influences and Challenges