Question 2
In the process, Tesco will be less considering its luck in entering into the African market due to the fact that Africa is weak in a lot of factors that affected their overall business economy over the years and they’ve not responded positively to the call of attracting FDI unlike other regions like of Singapore and Japan. The unlike factors are beating the positive ones such as for example, poor health management programs that has widened the cases of AIDS in the region. AIDS is always an alarming issue and foreign business like that of Tesco will not take vivid chances to go on with business investments into Africa (Collier 2010). Of course, no employer wishes to put high risks on the health conditions of their human resources and will not plan to extend their assets and liabilities without appropriate and desirable consideration in the long run. African per capita incomes have been falling behind those of the rest of the world for most of the last 40 years.1 The period 1980-2000 was particularly grim, with an average rate of divergence of 5 percent per annum, although recent performance is much improved. Africa has grown faster than the world as a whole (although still slightly less per capita) (Collier 2010) since the early 2000s. There are numerous reasons for Africa’s poor performance, many of them country specific, and this paper investigates the role of Africa’s economic geography. Africa’s endowment of high quality agricultural land is patchy, with many areas having low rainfall and high propensity to drought. Its natural resource endowment is unevenly distributed across countries and surprisingly low (Collier 2010). Sachs and Malaney (2002) argue that malaria has a powerful negative impact on economic performance and estimate that its impact on growth just over the period 1980-95 adds up to as much as 10 percent of GDP. The rinderpest epidemic in the late 19th century killed 90 percent of cattle in many regions, and epidemics recurred to the late 20th century (Caselli and Feyrer 2007). Furthermore, Africa scores high on measures of ethnic, linguistic and religious fractionalization. Every of these features create heterogeneity amongst African countries. In addition, Collier and O’Connell (2008) have classified African countries as coastal, resource-rich, or landlocked and the economic problems and prospects for these groups are quite different. There was also agglomeration forces mean that some regions are integrated into the world economy and others not, a core-periphery view of the world. However, fragmentation into small countries with poor neighbors has been part of the problem underlying Africa’s poor economic performance. The typical African economy has concentrated banking sector and this is a sufficiently small number to enable collusive oligopoly. The limited nature of the market also leads to a concentration of risks: banks are exposed to a high covariance of the risk of default. As a consequence there is often lack of innovation, high deposit-lending spreads, and an unwillingness to lend beyond the purchase of government debt (Caselli and Feyrer 2007).
To invest in the African market, business markets outside the region must see to it that the country has served well in terms of risk regulations on FDI and will adhere to some policies that are of importance in putting a sound business operation into the country. Africa is not attracting FDI due to certain market agglomerations that are of inefficient resources to the market like that of financial issues concerning banks and other problems like that of infrastructure control meaning, lands are being locked and so how can business from foreign land will enter successfully in Africa like that of Tesco and many others. Poor and week management of infrastructure will not make Tesco pursue its plans if there is in real aspect. There are also problems with educational systems in Africa, of course this is due to poverty levels and poor programs and policies focusing on the matters of knowledge and instruction. Low education in Africa has brought a lower stance on socio demographic factors on education like that of family background, income levels and understanding of simple and basic means of lifestyle and livelihood. Labor costs are low and 1unstable; Africa has not provided a policy that battles the issue of wage schemes and payments to labor industry markets. Even though, slowly they are acting on this one but still no proper adaptation of income considerations are set to place. High levels of corruption is keeping Africa away and so FDI possibilities are not 100 percent working on their side although recent changes into the government has been made but on the major stance, many things are yet to get resolved and put into paper. This is particularly overboard when it deal with economic policy management and to get accustomed with global labor relations is imperative so that FDI will take a queer eye on what Africa will offer to them and will set aside bad things or aspects that beats their resources on a lower level as expected over the years. Compressed population is also a problem that flawed over poverty and unemployment levels in the region. There are also some slavery issues that scattered throughout the country that affected women’s rights and child laws. The impact of diseases that are dangerous has been present and the presence of AIDS is shocking revelation and so Tesco will not consider entrance to Africa as of the moment but, in the future it can happen given the fact that Africa will take complete control of it and will take action on the pressing issues that surrounds FDI extents and zones in a more desirable manner and consideration.
Ideally, Tesco will need to invest by putting a comprehensive guideline base to certain African FDI related policies that get to enhance FDI flows upon entrance to African markets. The policies can be the following:
- The need to utilize and to adapt to certain integrated policies controlling fair competition and the operation of markets. This is important to get access to global finance and reduce the high concentrated banks as well as to increase on the nature of markets through appropriate investments and be in positive control with GDP and the country’s tradable products and services (Caselli and Feyrer 2007).
- The need to boost more on monopolistic policies. This is needed to answer the issues of thin markets and monopoly power have further pernicious effects. Thus, one of the effective ways to take monopoly on a roll is through building the ex ante contract legally binding but, even in countries with strong legal systems, it is often impossible to write a contract with the degree of completeness that will rule out such opportunistic behavior (Matouschek and Robert Nicoud, 2005).
- The need to understand and adapt to effective provisions linking to the public goods. In this way, Tesco can deliver more quality and performance on their products and services with proper consideration of prices due to the African culture that is not wealthy and flamboyantly productive (Caselli and Feyrer 2007). African government in turn will have to supply public goods which are subject to scale economies. Then, Tesco will need to follow directly from increasing returns to scale and not too think much on ample costs of provision units.
- To create and execute good business economic policies and corporate governance. This has to be in line with the implementation of FDI policies to get through the African community and culture and take actions on fixed prices of their products that will allow Africa government to formulate economic policies as well as civil service quality and then huge FDI market will permit more of policies to exist
- At its best, Tesco can function by tailoring each decision to the needs of the individual and the circumstance: decisions can be modified. As Tesco becomes larger this style of decision-taking breaks down because micro-management becomes overburdened, and is replaced by rule-based procedures (Besley and Kamatsu, 2006; Chauvet and Collier, 2008).
- The need to create and implement policies centered on infrastructure along with global business international dimensions, predominantly for landlocked economies in Africa (Limao and Venables, 2001). Tesco investment can’t just create externality, but also potentialities for hold-up. Suppose that a clothing resource is in land-locked Africa and there is only one route for the resource to reach the coast for export. This has been due to bilateral monopoly in which countries have an incentive to cooperate before investments are made, but an incentive to try and capture the entire surplus once investments are sunk.
- The need to adhere to security policies. This has been suggested and that fragmentation will lead to military spending about 30 percent higher than might be expected in a United Africa. Meanwhile population significantly increases the risk, the effect is substantially less than proportionate: a territory under a single country has a lower risk than the combined risk from two polities was it split in half (Collier, Hoeffler and Rohner, 2009).
References
Besley, T. and M. Kudamatsu, (2007), ‘Making Autocracy Work’, CEPR discussion paper no. 6371.
Caselli, F. and J. Feyrer, (2007) ‘The Marginal Product of Capital’ Quarterly Journal of Economics.
Chauvet, L. and P. Collier, (2008), What are the Preconditions for Turnarounds in Failing States? Journal of Conflict Management and Peace Science, 25,332- 348.
Collier, P. (2010) ‘The plundered planet’, Allen Lane, London.
Collier P. and A.J. Venables (2008) ‘Trade and economic performance: does Africa’s fragmentation matter’, processed, Oxford.
Collier P., R. van der Ploeg, M. A. Spence and A.J. Venables (2010) ‘Managing resource revenues in developing economies’, IMF Staff papers, 57, 84-118.
Limao, N. and A.J. Venables (2001) “Infrastructure, geographical disadvantage, transport costs and trade”, World Bank Economic Review, 15, 451-479.
Matouschek, N., and F. Robert-Nicoud. 2005. “The Role of Human Capital Investments in the Location Decisions of Firms.” Regional Science and Urban Economics 35 (5): 570–83
Sachs, J. and P. Malaney (2002) ‘The economic and social burden of malaria’, Nature, 415, 680-685
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