Rethinking FDI: Beyond Growth Towards Purpose
July 27, 2024
People in my network keep sending me reports on Foreign Direct Investment (FDI), particularly emphasizing its importance for economic growth, development, and, by extension, social development in Caribbean Small Island Developing States (SIDS). This obsession with FDI as a key driver for progress is pervasive. Today, I received two articles highlighting this perspective:
While these reports detail the latest figures and trends in FDI, they often miss a crucial point: FDI, in isolation, does not tell us much about the actual benefits for the local economy and society.
Most investors are extractive by nature. They invest to create wealth, which is then often deposited elsewhere. Their primary focus is on their own return on investment rather than the holistic development of the host country. This creates a scenario where the local benefits of such investments are limited and often do not contribute meaningfully to long-term economic or social development.
The sector in which FDI occurs is critically important. Take tourism, for example. While it is a primary recipient of FDI in the Caribbean, it primarily creates low-paying jobs and burdens the island's infrastructure and natural resources. This sector often surpasses the carrying capacity of the islands, leading to environmental degradation and a strain on local communities. Thus, the purported benefits of FDI in tourism must be scrutinized against these substantial drawbacks.
Focusing on FDI as a measure of success is an old-school approach. Today's global economic landscape requires a shift from mere growth metrics to creating purposeful investments. The critical question should be: Do these investments create purpose? Are they sustainable? Do they contribute to the well-being of local communities?
Investments should be evaluated based on their ability to generate long-term value and positive social impact. Purpose-driven investments aim to balance profit with societal needs, ensuring that economic activities do not just extract value but also contribute to the local economy, environment, and social fabric.
It's time to rethink our obsession with FDI as a singular measure of economic health in Caribbean SIDS. We must look beyond the numbers and consider the qualitative impacts of these investments. By focusing on purpose and sustainability, we can ensure that investments genuinely benefit the local population and contribute to a more equitable and resilient economic future.
For further reading, please refer to the articles: Caribbean FDI Increase 2023[1] and US Caribbean Investments: Latest Figures[2].
Miguel Goede
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