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Energy, Water and Capital as Factors Influencing Business Essay

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Updated: Dec 7th, 2021

Executive summary

This study focuses on the various factors that a business requires to advance internationally. It is important to note that different countries are developed at different levels and for investors to be able to establish businesses in different parts of the world, availability of factors of production must be put to great emphasis. Investment in different parts promotes the amount of foreign direct investment that is received into the country. Foreign direct investment is determined by the prevailing conditions in the country of establishment of the firm and one of these conditions is the availability of the factors of production.

The aim of this study is therefore to look into the aspects of availability of these factors and the emphasis is on energy, water and capital. The study looks at the accessibility of each of these factors and their effects on the ability of the firms to expand. It is a critical analysis of specific economies that can be used as a base for the establishment of firms and how the factors of production in these economies may affect the choice of investment.

Energy

Scientifically, the ability to do work is called energy. Forms of energy include heat energy, electrical, chemical, solar energy, mechanical and nuclear energy. Energy is a core factor influencing the existence of man in any given environment. Everything we do requires energy, from skipping the rope to making our favorite meals, making a phone call to processing any given product in the market- without energy these things will be impossible to do (Loehr 2004).

Sources of energy

According to Loehr 2004) the sources of energy can be categorized into two, namely: renewable and non-renewable sources. Renewable sources are those energy sources when used up that can be replenished within a short period of time they include; solar, water, wind, wood fuel. Non-renewable sources are the sources where energy is used up without being replenished. They are used for a relatively long period and examples include; coal, fossil fuel and nuclear energy.

Who has access to energy?

The supply and use of energy have for a long time been a debatable issue and as technologies change, the need to supply and use the energy also changes. In most parts of the world, the use of energy has gone up in the achievement of development objectives. In order to be able to sustain the increasing global economic growth, there is a need to address the challenges regarding the accessibility of energy. Approximately 20% of the total world’s population who live in the industrialized countries consume more than half of the total supply of energy. Those living in the less industrialized countries consume the remaining proportion (OECD Economic Survey 2006).

Decision to produce and invest using energy

According to Chiras (2006), the ability to reproduce is important in a firm and some inputs may be reproduced while others are non-reproducible. Some of those factors that can be reproduced for the production of resources are capital and the natural resources while energy as a factor of input cannot be reproduced. There is therefore the need to emphasize the role and availability of energy in the growth of firms.

The OECD Economic Survey (2006) notes that there is a minimum amount of material input that is needed to obtain a given output and every firm must be able to determine the cost of production through the use of the available inputs. A minimum quantity of energy is needed to transform matter and all economic aspects or processes require some form of energy in order to enhance investment. Both the businesses and industries, in using their managerial and technical expertise must ensure that they are focused on helping the economy and the society to grow towards development. Through the investment programs directed towards promoting development, it is also necessary that measures are implemented to enhance accessibility to energy, which is an important factor to consider while investing.

The basic goals towards utilizing energy while investing in firms are accessibility to technologically advanced and cost-effective energy, availability in respect to consistency in supply and quality and acceptability socially and environmentally. It is important that the shortage of energy is overcome so as to enhance growth of firms and quality, as well as the effectiveness of delivering energy to all, should be considered a critical aspect in determining the cost incurred in using up energy (Chiras 2006).

Most developing countries have many untapped resources which can be exploited by foreign investors. However they lack reliable sources of energy which can be used to exploit these resources. For example, in Kenya, there is great potential for floriculture development but where there is available land there is no electricity which is very essential in the greenhouses. This becomes a challenge for the foreign investor who has to put up an energy plant before engaging in the core business (OECD Economic Survey 2006).

Variable-cost alternative resources

There are different forms of energy and a firm is required to take into consideration aspects of cost, reliability, environmental and social impacts of the form of energy being used. With both the renewable and non-renewable sources of energy, a firm may easily identify the cost-alternative resources that most effectively enhance its growth. The renewable sources of energy include wind energy, the water energy and the solar energy, all of which may be turned into electricity. The use of water to produce energy has been declining mainly because the earth’s water levels have been going down and new alternatives that are more technologically advanced and cheap have been established (Loehr 2004).

With hydropower as a renewable source of energy, it is cost-effective and is easily converted into electricity for use at home, in businesses and in other large factories. However, solar and geothermal energy can be used as an alternative also to produce energy because it is cost-effective and does not require complex technologies.

The use of high developing types of energy in Germany and Bristol

According to the OECD Economic Survey (2006), the extensive use of coal, gas and oil in different industrial sectors of Germany is posing a risk towards the future availability of energy. The use of these sources of energy also results in the emission of gases that adversely affect the climate and in this aspect there has been urgent need to shift to other sources of energy. The German energy industry has come up with well-advanced power plants to cater to the need for the good quality types of energy.

The German energy industry’s powerful power plants ensure that manufacturers and investors benefit from the use of the renewable energy. For instance, the German industry that manufactures wind power plants accounts for up to 40% of the supply of wind power plants in the global market. Germany has been able to create investment from the use of the more improved and high-quality renewable sources of energy through the global market (Chiras 2006).

According to Chiras (2006) Bristol has also been engaged in exporting renewable energy-related products and has also through its multinational corporations in other parts of the world been able to earn foreign direct investment through the products. Bristol aims at boosting its economy through the use of a balanced energy mix to make the best out of the technologies that they have.

Oil and Gas in Russia and Nigeria

Russia and Nigeria are key suppliers of oil and gas in the global market and this is enhanced by the fact that they are geographically located in favorable climatic locations. The western countries have been concerned about the likelihood of Russia taking over the production of Africa’s resources. With Nigeria, the production of natural gas is sufficient but there are problems in extracting these gases as the country is not fully developed. Europe is mainly concerned with the Russian economy and it obtains its oil from the country. Investing in Russia is a benefit to the European economy due to the easier availability of energy resources and the advancement of technology that is needed to produce these resources (OECD Economic Survey 2006).

Foreign direct investment in Russia is a worthwhile way of developing Europe’s economy and with the enormous reserves in natural gas, there is high possibility that the growth will stabilize for a relatively long period.

Between Chad and Nigeria, which is worth investing in?

Despite the high availability of energy in Nigeria, it has not proved to be a reliable country to invest in and with the studies carried out Chad can be said to be way ahead of Nigeria in terms of economic stability. Nigeria has been experiencing political and religious crises which have negatively affected its economic growth. The poverty level is also way below that of Chad and foreign investors would be greatly affected by these factors. It would therefore be advisable to invest in Chad and not in Nigeria.

Water

Why is water important in determining investment in business?

Johnson (1993) argues that water is a very essential requirement for both human and economic development, as well as for the proper management of our ecosystem. However, despite this, many people all over the world lack sufficient access to water and proper sanitation, mainly because of poor governance and maintenance and insufficient investment. The business enterprises need to take into consideration the availability of water before investing in a venture.

Availability of water promotes agricultural development and reduces food wastage and this in turn promotes the growth of a country’s economy. Lack of sufficient water is one determinant of poverty in a region and where there is lack of sufficient water, then it means proper sanitation is not enhanced and a great risk is posed to businesses that are established in these areas (Johnson 1993).

According to Rouse (2007), sufficient and constant supply of water increases supply of food and improves people’s way of living. On the other hand, prices of food become stabilized, enhancing stabilization in both the household and national economies as well. Since agricultural markets constitute a large part of most countries’ economies, stabilized food prices as a result of reliable access to water ensure that inflation levels go down and stabilize and this creates a suitable environment for businesses to invest.

The relationship between supply and the price of water

In many parts of the world, the government attempts to dominate the supply of water to enhance sufficient availability and affordability. Once proper management schemes have been enhanced in a country, it becomes easy to provide water to people at low costs. In most parts of the world, there are sufficient water bodies which provide a reliable source for the provision of water to the entire population. However, there is need to educate people on the proper usage of water in order to prevent wastage (Rouse 2007).

Rouse (2007) argues that as the government aims at reducing poverty levels through reduced prices of commodities, there is also need to lower the cost paid for the supply of water. The usage of water should be directed towards improving their standards of living and promoting economic development so that overuse and misuse of water are minimized. Low prices of water can be used to supply more amounts of it to all if proper awareness has been created to ensure that people do not make improper use of the water.

Is India a favorite location for investment?

One of the major factors to consider before choosing the location of business investment is the prevailing economic conditions in the area. India’s population has been one great barrier towards its development and despite different foreign investors setting up some of their enterprises in the country, there still arises great challenges in the growth of these enterprises. With the unfavorable climatic conditions in the country, India experiences massive food and water shortages and these inhibit the growth of the country (OECD Economic Survey 2006).

The food produced is just sufficient to feed the large population and the increasing demand for these products causes high prices in the market. The country is yet to come up with strategies aimed at providing sufficient water for the entire population in order to overcome the food and water crisis that is also affecting the country’s economy. It would therefore not be advisable to invest in India, mainly because of the food and water insecurities that have been taking a long time to be addressed.

Private and public water organizations

Rouse (2007) argues that both the government and the private sectors need to play a major role in coming up with policies that will ensure reliable availability of water to all people. The government has more authority over the sources of water compared to the private sector and water managed by the government is therefore more affordable than that managed by the private sector. On the other hand, the management of water by the private sector improves the quality of services and promotes its reliability.

Australia has developed strategies to enhance freshwater supply through the private sector, with the government coming in only to offer assistance where necessary. Australia, just like other developed countries, has established private water companies that are directed towards providing fresh water to the country. With these, there has been great improvement in the provision of these services and the involvement of the private sector in providing water has been seen to be fruitful and there is possibility that the technology, as well as the human resource development, will improve (OECD Economic survey 2006).

Proper water usage

The governments of Finland and Norway have come up with strategies of conserving their natural water reservoirs in respect to usage and re-usage of water. They intend to use their transboundary water sources effectively so that there will not occur any future water crisis between them. They have developed policies to monitor and supervise the conditions and quality of the water catchment areas, the prevention of water pollution, the construction of new water catchment areas and the regulation of the supply of water (Christian 1998).

Capital

What is financial capital?

Financial capital has been used as one major way of determining value for an investment. It is used to pay for things in different places. Investors use financial capital to set up firms in different parts of the world. They are an effective form of trading because they have a stable value and are accepted by many people. The forms of financial capital include trading in stocks and shares, bonds or gold and they may easily be exchanged with currency (Perez 2003).

Other types of asset which are treated as financial capital are land, which is defined in some form of value and traded with other commodities or services. Financial capital can therefore be said to be any form of asset that is used to obtain funds for expansion.

Quantitative easing

Taylor (2007) defines quantitative easing as the creation of a new value for money through the central banks’ open market operations. They act as the starting point towards increasing the money supply. For instance, the UK may print certain quantity of money without much planning and then use that money to purchase a commodity. It is an indirect way of printing money and Germany experienced a one-time quantitative easing which it described as currency to buy blue bread. At one time, Iceland experienced economic hardships that it could not even finance its banks and the central bank held an open market operation to print some money.

Quantitative easing creates a risk of currency devaluation especially if it carried on for a relatively long period. They are carried out mainly when currency is experiencing deflation that would likely cause adverse effects on the economy. However, it should not run for a long period of time (Taylor 2007).

Summary

In summary, it is clear that for an investment to succeed there must be availability of energy, water and capital. Energy is used to help in production of resources that are useful for investors. On the other hand, water is an essential element in the success of any business enterprise. The availability of water determines the economic development and this in turn affects the potential of the country for foreign direct investment. Capital acts as the basis for the growth of an investment project. Foreign direct investment in different parts of the world will improve when the financial capital is readily available and is used effectively.

Bibliography

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Christian, A, 1968. Geography of Norden: Denmark, Finland, Iceland, Norway, Sweden: Heinemann, USA.

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