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Sudan is one of the poor nations in Africa yet it has potential resources that citizens can invest. The economy of Sudan mainly relied on agricultural products. At that time, the nation had few and undeveloped infrastructure caused by civil wars and conflicts among ethnic or social groups. In 1999, the nation went through a sudden change when it started exporting crude oil (Obeng-Odoom, 2015). For almost a decade, the economy of the country grew, because of increasing oil production and costs and noteworthy arrivals of foreign direct investment connected to the oil industry. In 2011, South Sudan’s retreat was very shocking and it led to an economic shock. The government has been trying to normalize things through activities such as encouraging foreign direct investments. Dependable information on Foreign Direct Investment in Sudan is limited. However, this research paper focuses on how foreign direct investment in Sudanese oil changes the economy of that nation.
During the last decades, specialists and authors in the economic literature have widely argued about the relation between FDI and economic growth. Most of them have been using Sudan as their host country while others have used other nations. However, the theories and the present literature differ in some way concerning this relationship. On one hand, some authors argue that FDI increases the economy of a nation through introducing foreign technology which in most cases is better than the existing one (Buckley et.al, 2007). On the other hand, some believe that FDI may have a negative effect on the economy through crowding out impact on local investment, external weakness and reliance and unhealthy competition of foreign associates with local companies.
In literature, there is an approved way of defining FDI. That is, foreign direct investment is an investment done to attain a durable management concern in a business initiative functioning in a nation different from that of the investor as stated by residency (Kolstad & Wiig, 2011). FDI is further grouped twice: Greenfield investment, merger, and acquisition (M&A) which includes the attainment of present concerns rather than the fresh investment. According to the World Bank (2007), FDI flows have achieved a record of US$ 1.1 trillion in 2006 and it has continued to focus on the developing nations. In current years, FDI outflows from big developing nations are also steadily increasing. For instance, from 2004 to date, FDI flows from India into UK have outdone flows from UK to India. Adjusting this pattern in global FDI flows has attracted the attention of most scholars and encourages a change in stress among policymakers in developing nations to inspire more FDI.
The discussions about FDI in literature vary from an optimistic outlook to a pessimistic one. The unreserved optimistic thoughts are explained with accordance to the neo-classical theory or most currently fresh theories on economic growth. The radical economists pass through systematic pessimism ideas. However, most researchers, policymakers, and scholars believe that FDI encourage economic growth for host nations via different ways (Alden, 2005). It plays a role in initiating fresh management routines and more organization for production. As a result, FDI can play a significant part in modernizing a country’s economy and boosting economic enhancement.
Beginning with the Caves first work on FDI in 1974, his nation case studies and company extent cross sectional researches made him argue that there is a beneficial relation between the outputs of a multinational initiative and mean worth added per employee of the local companies within the similar segment (Asiedu & Lien, 2011). Later in 1996, Caves noticed several positive impacts of FDI that caused rising determinations to invite more of it. Among the benefits were increase in output, adoption of new technology, initiation of fresh processes, multination production linkage, and access to international markets.
There are only two arguments about the effect of FDI on the economy of the host country, Sudan in this case. The first argument is that FDI increases the economy of a nation through introducing foreign technology, which in most cases is better than the existing one (Hanson, 2008). This argument is mainly among individuals who are optimistic and have extensively read the current literature on FDI. The second argument is that that FDI may have a negative effect on the economy through crowding out impact on local investment, external weakness and reliance and unhealthy competition of foreign associates with local companies. Pessimistic individuals pass across this argument. However, studies show that most researchers, policymakers, and scholars are optimistic individuals; therefore, they argue that FDI encourages economic growth for host nations via different ways.
The oil sector is Sudan has had both positive and negative impacts on the economy of Sudan. China is the chief player in Sudanese oil sector. China uses different investment, support flows, and diplomacy to be able to manage entrée to oil resources in Sudan. Statistics released by 2007, showed that China takes more than 50% of total FDI in the oil industry (Salidjavona, 2011). China also invested in more than a third of total foreign investment across all sectors of Sudan.
FDI of China in the oil industry of Sudan has nurtured a good relationship between the two nations making them to engage in more other businesses leading to growth of their economies (Zweig & Jianhai, 2005). There has been increase in average volumes of exports from Sudan to China and imports in Sudan from China. China is the main importer of Sudan’s petroleum at an approximately 80% of the total, leaving the remaining 20% to other nations. The direct investment of China in the oil industry in Sudan encourages China to raise its assistance, financial aid and grants to Sudan. Sudan has received huge loans from China that has helped the country to invest more in other sectors. The host nation has been able to improve its infrastructure through ideas, loans, and assistance from China. Furthermore, Chinese workers have been constructing roads and working on improving other infrastructure in Sudan.
Oil production in Sudan has helped the nation to shift from an oil importing economy to an oil exporting economy. This has attracted more oil revenues to the government since the country is now collaborating with foreign oil generating firms in Sudan. The revenues from foreign direct investment have helped the government complete it goals such as the construction of the Khartoum refinery (Nour, 2011).
The rise in China’s FDI in Sudan was because of the constant surge in demand for goods globally over the previous decade and by the active industrialization progression in China. The liberalization rules followed by some nations, such as Sudan and China, have generated an enabling environment for the activities of FDIs, trade and other financial movements. Over the previous decade, Sudan has been concentrating on its macroeconomic transformation and has established several investments promotion Acts that have been put in practice since 2002 by the Ministry of Investment. Most Chinese private firms invested in the oil sector in Sudan. In 2009, the Chinese private companies were forced out of their nation because of stiff competition and less profit.
Sudan is still a small manufacturer of oil. The country still depends on agriculture to offer employment to people and produce food for the citizens. However, since the start of oil production the contribution of agricultural sector to the real GDP of the country has reduced by more than 6% (Cheng & Ma, 2010). Therefore, FDI has had more of positive effects than negative ones on the economic growth of Sudan.
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This research paper has clarified the role of FDI from China to Sudan and looked into the effects of oil in promoting economic improvement in Sudan. An explanation of Chinese investment, assistance, and growth aid to Sudan is given in detail. Several positive effects of FDI from China to Sudan were discussed; this include the effect of oil in fulfilling local usage and the attainment of self-reliance, and the effect of oil in rising government resources. This paper therefore concludes that FDI in Sudanese oil mostly have positive effects to its economy.
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