International Business in Sub-Saharan Africa
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In order to achieve development goals in sub-Saharan Africa, the developing countries within need to become more integrated into the world economy or else they will continue to become poorer. Free trade and investment, de-coupling and globalisation are all essential if this prospect is to become a reality, however this would not be an easy task as many barriers are effecting their current situation.
Free trade and investment is the allowance of trade and investment across national boundaries without interference from the government (Elkin, G & Browning, V. 2008). Trading and investing leads to a better use of the world’s resources as countries can generate more of what they are good at producing. The benefits of trade and investment can be shown by the United Kingdom. Since joining the European Union the UK has experienced an increase in trade with other EU Members. In 2003, 56% of the UK’s trade in goods was with EU partners, up from around 35% in 1973 (UK Govt. 2002). By dismantling internal barriers it has boosted growth and productivity in the EU, however there internal barriers would have been a lot different from those in sub-Saharan Africa.
De-coupling is the ability of an economy to grow without increasing its own environmental pressure. Countries chose to de-couple in order to keep developing their economy as a result of not having investment opportunities available or that they are too difficult to take advantage of in their own country. An example of this is China who used $2 trillion of foreign reserves to invest in other emerging markets such as by investing $10 billion into a Brazilian state-run oil company (Washington Post, 2010) and buying land in different places across the planet for various financial visions. Currently countries in sub-Saharan Africa do not have the finances to de-couple.
Globalisation is the system of interaction among the countries of the world in order to develop the global economy (Elkin, G & Browning, V. 2008). Brazil, Russia, India and China are all leading the world in terms of globalisation. These countries have experienced a double in their trade to income ratio over the past two decades as well as GDP per capita growth of around 4% (UK Govt. 2002). Other developing countries such as those in sub-Saharan Africa have faced difficulties in diversifying their economies and export structure leading to little or no globalisation.
Free trade and overseas investment is the ability of one country to trade and invest with other countries without any government’s being involved and having control over the process. Free trade and overseas investment begins by the government of a country removing their own trade barriers and those of other countries. This is necessary to let trade flow but it is not always sufficient. Benefits of free trade include: increased productivity, more efficient allocation of resources and greater opportunities to exploit economies of scale (UK Govt. 2002). These countries with open markets are the ones that appear to grow faster but the extent of this is determined by trade liberalisation which generally varies between countries. Individual companies can also benefit from expanding into world markets. If the domestic market is limited in size a company can grow and become more efficient through exporting. Developing countries however, face much more pressure constraints in being able to capture the benefits of free trade as some do not have the skills and resources available to be successful. In sub-Saharan Africa most of these countries have supply problems and lack the capacity to respond