Foreigner Direct Investment
Arek Dybich
Chief Financial Officer-Investment Portfolio Consulting, University of Sussex MSc Finance and Management, Aviation Management BSc University of West London,CIMA certificate, Financial Market, CAA FAA Pilot
This article will focus on an ex-communist country based in Eastern Europe. Poland has experienced the kind of rapid economic growth achieved from past communism ere 1988 to 2020. The political and economic course of the nation was massively reoriented, as industries in the state economy were privatized and market-based competition was introduced (Gopel,2016, p.119-129). Through the immense effort of society, these reforms have brought about a major positive political and economic change recognized by Kennedy (1998).
The compere dates for both countries, Poland and the USA with an analysis combined with examples.
Word Bank date indicates that the annual average rate of increase in Gross Domestic Product (GDP) in Poland was 3.825 % from 2000-2019 (Appendix 1) compere to United States GDP on average 2.09% rate in the same year range (Appendix 2) another indicator is Foreigner Direct Investment (Appendix 3,4) in Poland average was 2,5 billion compares to average in the USA was 84 billion.
Where there have been many causes of this rapid growth, the general emphasis of the economist has been placed on the liberalization of the economy as noted in the International Monetary Fund. ( Ouanes ,?Subhash Thakur ,? Leinert ?, 1997) and is correlated to globalization and the effect on reducing the cost of capital (Stulz,1999,p.23).
This transformation started after 1989 and involves the continued introduction of market-oriented reforms, including greater involvement in international trade (Nsouil, Havrylyshyn, 2001).
Interesting illustration entry into the European Union in 2004 (Piatkowski 2018) where expanded trade and investment for multinational companies as well as the opening WIG 20 capitalization-weighted stock index.
There are critical challenges to consider according to data collected from Transparency International, Poland is in the 45th position in corruption compare to the USA on the 25th position (Appendix6), this comes from a historical communist country where bribery was a day to day norm pointed by Debicka (2005, p59-78).
To operate a business, whether it is small or large, you need the money, the money to start the business and to operate it.?These funds come from two sources of financing: debt lending and equity. Debt capital includes bank loans, personal loans, bonds, debentures, credit card debts. These organizations deliver the required loan to businesses by looking at the corporate plan and the prospects of the business.?If they believe that business is going well in the future and that the business has a good credit rating, they give the required loan to the business.?In return, these institutions are given interest on the principal amount at the fixed rate and the repayment of the loan. This is beneficial towards ownership after repaying the loan all assets belong to the company, not shareholders.
The second is equity capital. This is done by Initial Public Offering (IPO) for fundraising and later by issuing shares in the secondary share market example pointing here is Facebook when in 2013 Mark Zuckerberg sold 41 million of his own shares to investors for external finance (Rozeff 1982). Investors are the owners of the enterprise and are called shareholders.?They invest money in enterprises and obtain a share of the profits in the form of dividends and capital gains. Capital is mobilized through multiple funding cycles as the company's valuation may increase during start-up. The challenges and risks associated with such operations are U.S. security laws and are related to national security (Appendix 7).
?Costs associated with capital mobilization. Dividend payments to shareholders (Lie 2005). Respond to shareholders' expectations concerning the return on investment. Interest payable on the debt capital.
The opportunity cost of invested funds fees and commission to pay for the collection of funds (Baker, 2009). The second part is associated with ownership in the opposite effect a substantial amount of investment belongs to the shareholders.
Foreigner Direct Investment (FDI)permits knowledge transfer through the relocation of skills and management practice. An additional aspect is the creation of employment prospects (Morgera,2020, p 87) a constructive component given that enterprises employ a number of residents from host countries in countries where capital is scarce and labor-intensive. An important aspect was indicated by gaining access to global capital markets should allow lowering its cost of capital (Eiteman, Stonehill, Moffett,2007,p402).
?Another challenging aspect to be considered is the examination of the exchange rates of two countries (Sercu2009, p.63-156) (Appendix 7), the capital of the domestic product in inventory, and random distribution. (Stockman C, Svensson L. 1987). The specific example is the subject of numerous speculations on the market where political and economic information plays an important role as a decision-making indicator. Fisher's (1928) effect on inflation price on unstable money and global financial crisis 2007-2009 (Appendix 8) and the Law of One Price (Sercu2009 p,87-96), together with Foreigner Portfolio Investment (FPI) analysis (Markowitz 1991) should be taken to assessment.
The benefits of attracting FDI (Azemar, Dharmapale 2019) are the U.S -Poland tax treaty which allows accessing both territories without paying duty in both countries explained by Sercu (2009, p.703-722).
An illustration of globalization is this article where a company looks for investment in other country and acknowledge by International Monetary Fund (2003, p.63) towards welfare gains from national to multinational levels.
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Marketplace segmentation Smith (1956) is established as one of the most generally recognized along with progressively critical models in university marketing research and real-world practice (Appendix 10).?
Cooperation on the road to accomplish relation market share benefits, the marketing group has initially to recognize appropriate sectors of demand, then recommend, then eventually employ a successful marketing strategy on high consumer and market data pointed in argument by Zhoue, Zhai, Pantelous(2020).
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Market segmentation (Weinstein 2004,p16-18) together with market liquidity increases the firm’s marginal cost of capital however (Eiteman, Stonehill, Moffett,2007,p403) this crates problem in a liquid market since is one in which it is difficult to raise new capital because there are not sufficient buyers to a reasonable size offer.
Analyzing trends in countries together with statistical capital inflows from 20 years period USA versus Poland (Appendix 1,2,3,4,5,7) coming forward to the conclusion that numerical information creates the great prospect for raising capital for Polish companies in the USA.
Consider the highly regulated organism map to create opportunities and steady growth of Eastern European countries.
There are excessive benefits towards transcontinental direct financing due to monetary globalization improves economic interrelationship of national economies across the world through the rapid flow of capital, allowing investments to pursue the maximum cost of return in a given level of business and financial risk defined by Eiteman, Stonehill, Moffett (2004,p.347).
Bibliography:
1.???Gospel M, 2016, The Great Mindshift, Springer International Publishing, Berlin,p119-148.
2.???Kennedy R, E,1998, A tale of two economies: Economic restructuring in post-socialist Poland. Journal, World Development, (volume 25, Issue 6, June 1997, Pages 841-865)Harvard Business School, Boston, Massachusetts.
3.???Abdessatar Ouanes ,?Subhash Madhav Thakur ,?Ian Lienert , 1997, Washington macroeconomic accounting and analysis in transition economies, International Monetary Fund, Washington.
4.???Stolz R.M,1999, Globalization, Corporate Finance and cost of capital, Journal of Applied Corporate Finance, Volume 12.3,p.23.
5.???Nsouil S, M, Havrylyshyn O,”001 A?Decade of Transition, Achievements, and Challenges, International Monetary Fund, Washington.
6.???Piatkowski M,2018, Europe’s Growth Champion, Insights from the Economic Rise of Poland, Oxford University Press. Oxford, p.237.
7.???International Monetary Fund,2003, Effects of Financial Globalization?on Developing Countries -Some Empirical Evidence,p.62.?
8.???Morgera E,2020, Corporate Environment Accountability in International Law, Oxford University Press, Oxford,p 87.
9.???Eiteman D, K, Stonehill A,, Moffett M,2007, Multinacional Business Finance,11th edition, Pearson Education, Inc, Boston,p402-403.
10. Sercu P, 2009, International Finance, Theory into Practice, Princeton University Press, New Jersey, p.63-156,87-96,703-722.
11. Azemar C, Dharmapale D, 2019, Tax sparing agreements, territorial tax reforms, and foreign direct?investment, Journal of Public Economics
Volume 169 ,?January 2019, Pages 89-108.
12. Transparency International ,2020,Corruption Perception Index,viewed on 08/04/2021,avalibele??on : https://www.transparency.org/en/cpi/2020/index/brn
13. Michael B, Debicka A,2005, Anti-corruption Training Programs in Centra; and Eastern Europa, Council of Europe Publications.
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Journal of Business,?78?(6)?(2005), pp.?2179-2202.
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18. Fisher I, 1928, The Money Illusion, Adelphi Company, New York, p4.
19. Markowitz M, 1991, Portfolio Selection,2nd edition, John Wiley & Sons, Inc. Oxford, p.3-36.??
?20. Stockman C, Svensson L, 1987, Capital Flows, Investment and Exchange Rates, Journal of Monetary Economics 19,171-201, North-Holland p.73-191.
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23. ZhoueJ,Zhai L,PantelouA,,2020,Market segmentation using high -dimension spare consumer data. Journal, Expert Systems with Application (volume 145,1May 2020.113136).
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?Appendix1.
The United States and Poland DGP
Studying the data provided by the World Bank and Bloomberg by analyzing the two countries United States and Poland, we can point clear evidence on country GDP performance.
Poland for 20 years never had a single negative GDP compared to the USA in 2008 and 2009 where recession strikes the most countries with a high risk of investments especially the housing market in the USA.?The personal experience gathered on this topic suggests that banks and mortgage suppliers in the United States were taking higher-risk loans than Polish banks and mortgage lenders. In the US it has been possible to take out a 110% mortgage (personal experience in Chicago) whereas in Poland it was difficult to get 85-90% mortgages.
Arkadiusz Dybich -Poland GDP 2000-2019 Source Word bank. Available on:https://databank.worldbank.org/reports.aspx?source=2&series=NY.GDP.MKTP.KD.ZG&country=POL#advancedDownloadOption
Arkadiusz Dybich The country trend rate of growth over 20 years period is the average rate. An expansionary phase of the business is demonstrated by the year 2000-2019.
Total % / Years =Average??????????????76.501:20=3.82508???=3.825%
?Appendix 2.Arkadiusz Dybich
USA GDP 2000-2019 source World Bank available on https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2019&locations=US&start=1961&type=shaded&view=chart
The country trend rate of growth over 20 years period is the average of the growth rate. An expansionary phase of the business is demonstrated by year 2000-2019, however years 2008 and 2009 are negative growth.
Total % / Years =Average??????????????41.873/20 = 2.0917%
Arkadiusz Dybich
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Arkadiusz Dybich
?Appendix 3 Arkadiusz Dybich
Foreign Direct Investment Poland /USA comparison?
Appendix 4 Arkadiusz Dybich
By analyzing these two graphs and the date of competition on the percentage invested in both countries, Poland had increased in foreign investment since liberalization and the democratic approach to globalization.?On average, investment in Poland was 3.4%, compared to 1.8% in the US. That is nearly double the investment in Poland.?Which creates good investment opportunities when comes to the United States for investment in Poland.
Net inflows of portfolio investment in billions.
Arkadiusz Dybich
The average investment in Foreign direct investment in Poland was about 2,5 billion levels compare to the USA where we could see a substantial amount of average 20 years investment of 84,5 billion.?However, when we compare this date to a Poland population of 37 million to USA 328 million that gives us investment per person in-country Poland 66 dollars compare to USA 5145 dollars taking to account that the USA in population is bigger than Poland 8,5 times. The considerable investment comes from technology, regulatory bodies as a good opportunity created in both countries.
Appendix 5
Increase in Trade Import Exports Poland USA compares 2000 -2020 by 800%.
Source data from Census.Gov Arkadiusz Dybich
Created: Arkadiusz Dybich
?Available on:https://www.census.gov/foreign-trade/balance/c4550.html
To calculate the average trading percentage from 2000 to 2019 date added and subtracted by 20 years of data?
Poland average 38,42% compere to USA 173,86 %.
Another example of investment and liquidity on both countries.
Data Source: Arkadiusz Dybich World Bank /Bloomberg,Census.Gov, Yahoo Finance, JSTOR, Science Direct.
Both charts are examples of investment and liquidity with increasing transactions in both countries, but the US has a larger number due to the longer historical operating on trading floors than Poland.
Appendix 6
Corruption Perception Index
Country corruption list USA on 25 (score 67) position comperes to Poland 45(score 56)
Twice bigger possibility of corruption. This creates risk opportunities as well challenges for future investments and regulatory bodies.
?Source: available on https://images.transparencycdn.org/images/CPI2020_Report_EN_0802-WEB-1_2021-02-08-103053.pdf
Data Source: World Bank /Bloomberg,Census.Gov, Yahoo Finance, JSTOR, Science Direct.
Appendix 7
Exchange rate
Source Financial Times access on 09.04.2021, available on:https://markets.ft.com/data/currencies/tearsheet/summary?s=USDPLN
?US Dollar/Polish Zloty FX Spot Rate
?PRICE (PLN)3.8165
TODAY'S CHANGE0.006 / 0.16%
1 YEAR CHANGE-8.26%
52 WEEK RANGE3.6121 - 4.2415
Data Source: Arkadiusz Dybich World Bank /Bloomberg,Census.Gov, Yahoo Finance, JSTOR, Science Direct.
The year's low was 3.6121 while the year's high was 4.2415. which means a 52-week period in this information.?This information shows the data from 1998 to 2021 so we can see here volatile changes within these two pairs.
Appendix 8.
The Fisher effect is a theory coined by Irving Fisher.
We experience fisher effect, we go to a bank, Saving Account is an account where the account holder gets a nominal interest rate for his money which he has kept.?And Let the saving bank interest is 4% and the expected inflation to be 3%, this shows that the money has increased by 1%.
Once the interest rates are at a low level, it will take more time for money to grow, this works both ways.
This expected interest rate and the inflation rate are impacted by the supply of currency.?Consequently, if a new monetary policy is passed by the central bank and makes the inflation rate increase by 8% points, then it should be reflected in nominal interest rate to change by 8% point, subsequently, it will show us that it has a direct relationship with the nominal interest rate and will not affect the real interest rate.?
The fisher effect is used in international currency trading and the analysis of money supply can be done through it. The nominal interest rate is the interest rate when you deposit money in the bank. Like nominal interest rate is 5% annual, it means that 5% additional money will be added to the depositor's account on his deposit money.?And where the real interest rate defines the person's purchasing power in the market.
Created: Arkadiusz Dybich?
Appendix 9.
The United States has national security and sector review regimes with respect to foreign investment.
Please see link accordingly to US Security’s Law where are strictly rules how US implies those requirements.
Available on:
Section 721 of the Defense Production Act (DPA) of 1950, as amended, 50 USC Section 4565
Available on:
Appendix 10
Market segmentation determination
These are parts of market segmentation that play a role in determining targets.
Data Source: World Bank /Bloomberg,Census.Gov, Yahoo Finance, JSTOR, Science Direct.