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Investment Climate Impact on Private Corporations Essay


Market System

Promoting a positive Investment climate generates opportunities where private corporations can thrive in their business undertakings. At the same time, a positive investment climate provides individuals with openings to empower themselves. To achieve these objectives, there is a great need for an efficient and operational market system in any economy. It is in this perspective that many people recommend the free market system as the best economic mechanism, for distributing scarce resources and encouraging a positive investment climate.

A market economy is one in which prices of things are unreservedly set based on the principles of supply and demand. Such an economy is unregulated by intervention from a government or outside organizations. A market economy is, purely, an economy operated exclusively by the market itself. In the actual world, nonetheless, there is no such thing as a strictly free-market economy. Therefore, the free market economy as a concept is used to refer to economies, which are determined by market forces of demand and supply.

Many people believe that the market system enables the proper allocation of resources and creates a positive investment climate. One key feature of a market system is the capacity of the free market system to give people the freedom of choice (Pate, 2006, p.181). The author observes that the free market system empowers people to have greater freedom to make rational decisions on how they want to use their proceeds.

Another major advantage of the market system, as noted by Pate (2006), it allows for extensive use of individual entrepreneurial capacity. A free-market economy is determined by individual originality and the notion that hard work and inventiveness are rewarded through accomplishment. According to Pate (2006), the main objective of any business venture is to realize maximum returns in its operations. For this reason, in the free market system, a triumphant business makes a steady profit as it fends off contenders.

Competition is one of the key features of a free market system. Apart from ensuring that scarce resources are available at a convenient place and time, the market system through competition ensures that resources reach the end-users at a fair price, as dictated by demand and supply. When competition is at play, poor quality is phased off as competitors provide better offerings giving customers value for their money (Pate, 2006, p.184).

Government Role in Encouraging Positive Investment Climate

Although the free market economy has many positives, it is worth noting that some issues are very sensitive to be left in the hands of private investors; divorce of government attention and control. In reality, there are no ideal free-market economies. The American economy is touted as a free market economy, however, even in such a self-sustaining market; there is enough government control or regulation (Finger& Nogues, 2005, p.15).

Finger and Nogues (2005) note that to encourage a positive investment environment, it is necessary for a government to formulate effective trade policies, which after implementation will curb the unwarranted business practice. Such practices may include hoarding, a situation whereby business enterprises may end up holding basic commodities to benefit from the exorbitant profit that results from the creation of artificial scarcity of such products.

Governments also get involved in the trade to curb the dumping of substandard or harmful goods in an economy. To bring under control such occurrences, the government must improvise sizeable restrictions on what can be imported into the country as well as the legally acceptable magnitude through the system of import proportion and tariffs.

Other considerations that necessitate the active role of government in trade include the provision of sensitive goods and services that cannot be entrusted to the market forces. Issues such as national security and manufacturing of weapons to be used by the armed forces are so sensitive such that unless the government commands total control on their production, the country may transform into anarchy, incase such arms fall in the hands of criminals or terrorists (Feldman, 1969, p.20).

Some services such as the provision of electricity and other sources of energy to an entire nation are so crucial in the day-to-day economic activities of any given country. The provision of such goods and services cannot be delegated to a single private company or individual. Even where privatization has been realized, often the government may find itself having to come up with various control measures to facilitate smooth delivery of such critical services.

For the free market system to be most effective in providing a favorable investment atmosphere, it requires some environmental conditionalities like complete, free, and immediate accessibility of all pertinent information to all consumers and sellers ( Ndulu & Chakraborti, 2007, p.158). Governments often get involved in facilitating such market-wide sensitization and awareness drives. The government sensitizes investors on investment opportunities while sensitizing the customers on how to find the best deals or value for their money.

Another major reason why the government has a role to play in encouraging positive investment conditions is the fact that a free market economy has no mechanism to lessen the discrepancy between the rich and the poor members of society. There can never be a positive investment atmosphere when citizens are unable to empower themselves due to negative externalities resulting from the activities of industries. However, through government involvement in the free market system, such discrepancies are avoided.

Government policies that can help in improving the investment climate (South Africa)

A positive investment atmosphere is critical towards private sector directed growth and development, which in turn leads to the creation of job opportunities, income escalation, and the eradication of poverty. Improvement of the investment climate requires a proper understanding of problems and limitations to private sector ventures. To improve the investment climate, the government of South Africa should formulate policies that guide all the necessary business stakeholders to prosperity.

Though the topic of ‘investment climate’ is a multifaceted one, there are certain policies that are very vital for any business enterprise to thrive. Different issues that hinder our country from achieving a favorable investment climate can be categorized as economic, political, or social.

Starting with economical issues, our government should come up with policies that facilitate easy access to capital by businesspersons, be it the micro-business enterprises, or multinational corporations. Such a guiding principle may incorporate the bank rate policies, where the rates charged upon borrowing money for business investment are lowered (Fan, 2008, p.121).

Fan (2008, 121) further notes that the government of South Africa should come up with clear and uncomplicated guidelines that facilitate the simple bureaucratic procedure to be followed by companies or individuals who want to establish a business in South Africa. The fan is also critical of the margin requirement by most of the South African banks. He explains that to help create a good investment climate, our government should advise or direct the central bank to reduce the margin difference between the amounts of loan disbursed to an individual enterprise or company and the value of the collateral that one is required to pledge.

Politically, the situation in South Africa has not been conducive enough for business. To enhance the investment atmosphere, our government should establish measures that restructure the political situation in our government. The biggest block, politically, according to Smith (2005, p.6), is the high magnitude of corruption associated with crooked senior government officials. Smith (2005) notes that many multinational corporations that operate in South Africa are in one way or another politically connected with high-ranking politicians who facilitate their smooth business dealings.

As elucidated by Smith, the multinational corporations on their side, usually give kickbacks in an attempt to benefit from lucrative government contracts and tenders. Apart from the escalating corruption, there has as well been a lack of political goodwill among the politicians, many of whom do not have the interest of South Africans at heart.

In the social setup, the case is similar; most South African society is renowned to have a negative relationship with foreigners. Sometimes the issue gets out of hand leading to countrywide anarchy, where hundreds of foreign investors are roughed up, some experiencing uncountable losses while others end up losing their lives. This experience has tarnished the image of South Africa, and it will require our government and people of South Africa as well to walk the extra mile in trying to reconcile with the rest of the world, to enhance a positive investment climate.

Possible Positive Impacts of Hosting the 2012 Olympic in the UK

The Olympic Games is one of the oldest international sporting events in the world; the first Olympic Games having been held in Athens, the capital city of ancient Greece in 1930. The bid to hold the mega event has of late been turned into a political affair, due to the ever-increasing competition from big economies, in an attempt to stage the super event. This can be explained in terms of the numerous macro-economic benefits associated with staging some of these big international sporting events such as the Olympics or the world cups.

The 2012 Olympic Games bid was not in any way different from the previous bids, and it was after a rigorous battle that the International Olympic Committee awarded the United Kingdom the right to stage the 2012 summer Olympic and Paralympics Games in London.

Hosting the Olympic in 2012 is expected to bring many tangible macroeconomic benefits, to the United Kingdom, during and after the event. One key condition, set by the International Olympic Committee, is that the bidding nation must have the quality of hard infrastructure. Any government must therefore prove its potential, infrastructure wise, before being awarded the right to stage the event. In the case of the UK, the country is expected to benefit from the construction of world standard infrastructure such as state-of-art stadiums. These stadiums in return, are expected to generate huge revenues for the country in terms of entrance charges levied on thousands of fans and spectators who are expected to flood the country.

Transport is the other economic sector expected to receive a major boost. In this case, the UK government must renovate the transport system, to match the international standard expected for such a big event. It should be noted that the additional infrastructure or modes of transport developed, be it the railway, roads, or airports, will continue to be used even after the sporting event. Consequently, hosting the event will improve the transport sector and making it easier for people especially those who live outside London to have easy access to other places.

Many studies on the impact of the preceding Olympics reveal that inward investment has been captivated by arrangements for the Olympics, which has enlarged the host cities’ international profile. Although London is already recognized worldwide as a modern city and is a principal target for inward investment in the UK and Europe, it still experiences sustained competition from other world-class cities; both the old ones and the currently emerging.

The 2012 Olympic Games will without doubt elevate the reputation of London in comparison to other cities in Europe. The Olympics will help endorse London, worldwide, as a business focal point. The games will create attention and stir interest towards further increased investment into London (Poynter & MacRury, 2009, p.321) Poynter & MacRury (2009) further comment that the occasion will help East London to magnetize inward investment due to the boost it will receive in the form of world attention and improved infrastructure.

Tourism is the other sector of the UK economy, which is expected to enormously benefit from the Olympic Games in 2012. This will be possible through the extensive attention that will be directed at the country by local and international media. In particular, London is expected to receive and host a record-breaking number of tourists, who apart from touring the city are expected to tour the rest of the country at large (Poynter & MacRury, 2009, p.326).

The Olympic Games are also anticipated to present the prospect of promoting London as a more eye-catching international visitors’ destination and, as a result, to inspire a more constant tourist number and expenditure.

Another front likely to benefit, from staging the 2012 Olympic Games is job creation. Numerous job opportunities are anticipated to emerge because of this mega event in the UK capital. It should be noted that to successfully host this competition, the International Olympic Committee as well considers the potentiality of a nation in providing the required services for the sake of peoples’ welfare.

Some of the welfare services that are of utmost importance include the security of sportsmen and the accommodation for the huge crowd of fans. This means that the country must be prepared to provide enough security officers to maintain law and order, in addition to ensuring that the safety of all the persons will be guaranteed. Coming up with such a huge number of policemen implies that the unemployed citizens will be recruited in the police force or security units, and as a result, employment will have been enhanced. The other sector likely to boost the level of employment in construction, which will witness a beehive of activities in trying to catch up with deadlines.

From this sector, numerous job opportunities, for both skilled and untrained workers will be in plenty; putting into consideration that various construction works will be going on in the different fields of operations at the same time.

Sporting legacy is the other probable impact of staging the 2012 Olympic Games in London. The sporting legacy would take several forms. The first form will be reflected in accelerating investment in sporting equipment and other facilities, not only in London; the Olympic region, but also in other parts of the United Kingdom (Church & Coles, 2007, p.262). Church and Coles (2007), give examples of places where the training facilities will be provided, noting that such places are expected to be distributed in different parts of the country. The sporting legacy according to Church & Coles (2007) will be experienced in the form of increased participation in sports, which in return is anticipated to have social and physical impacts.

Therefore, hosting the Olympics is likely to impact on the health and well-being of Londoners. Due to the effect of the Olympic Games, many people and mostly the young generation will most likely be eager to participate or get engaged in sporting activities. Increased participation in sporting activities will improve the health statures of the people, and this means that most of the health complications related to lack of exercise reduce substantially.

Many Intangible benefits are likely to accrue from hosting the Olympic Games in the UK. These intangible reimbursements are impossible to evaluate in a quantifiable way. For example, more people in the country are likely to experience the enthusiasm, excitement, and honor that the Games will bring to the county.

An increase in overall economic growth will be the utmost benefit derived from hosting the Olympic Games. The huge amount of money that has already and which will continue to be injected into the economy will go a long way in facilitating faster economic growth and development.

Though the positive impacts may not be noticed instantaneously, in the end, they will be witnessed. Because of the huge investment in this sporting event by the UK government and other stakeholders, many job opportunities will be created, which in turn will empower the workers economically. On their part, most of these workers will invest their earnings in different economic activities to generate more returns. Due to the multiplier effect, the amount initially invested by the government will in the end facilitate a wider economic growth.

Possible Negative Impacts

The fact that hosting the Olympic Games is capable of generating a negative impact on the government as well as the people of the UK cannot be taken for granted. This is likely to be experienced in case losses are incurred, and the costs of preparing the event overshadow the benefits likely to emerge from the mammoth sporting event (Toohey, & Veal, 2007, p. 348). In as much as extensive economic benefits may be associated with staging the Olympic Games, there have been instances in the past, as noted by Preuss (2006, p.136), where staging these games did not bring expected financial rewards.

For instance, the 1972 Munich Olympics and the 1976 Montreal Olympics registered only losses for the two countries (Preuss, 2006, p. 44). Nevertheless, the 1984 Los Angeles Olympics and the 1992 Barcelona Olympics made an additional £215 million and £2 million respectively. The committee appointed to oversee the preparation and eventual hosting of such events determines the failure or success of any such big event.

Toohey and Veal (2007), further explain that such losses are most likely going to be met by citizens through increased taxation, which will be an added burden to the people. Others, though minor negative influences of the game, will register in the form of and as a result of congestion during the Olympic period. Additionally, as expected, the large pool of people will increase pollution in the environment.

Pollution of the atmosphere will possibly result from excess carbon emission from the various construction activities, taking place within London and its environment. Another source of carbon emission is likely to emerge from excessive automobile, transporting fans to the Olympic Park. Lastly, the disposal of waste may as well prove to be a hard nut to crack during this particular time.

Conclusion

In conclusion, it was worth celebrating for Londoners, when the UK won the bid to stage the 2012 Olympic Games. This first stimulated a sense of national pride, but most crucially, the celebration was informed by anticipated benefits likely to accrue from such an event. There are likely to be many economic and social gains from hosting the event. For instance, there is likely to be improved tourism gains during and after the event.

As discussed, due to the event, infrastructure is likely to be improved and employment opportunities are created. However, there are some possible negative consequences, which demand serious attention. For instance, there is a need for proper plans on how to deal with congestion on the roads. Although the country may boast of super high ways, the event is likely to affect the ordinary flow thus impacting negatively on the economy. Secondly, efforts towards ensuring preparations expenditure does not exit direct quantifiable benefits are necessary. Therefore, the Olympic preparations committee has to be astute enough in its expenditure as well as in planning the management of the event.

References

Church, A & Coles, T 2007, Tourism, Power, and Space, Routledge publishers, London.

Fan, Q 2008, The Investment Climate In Brazil, India, And South Africa: A Comparison Of Approaches For Sustaining Economic Growth In Emerging Economies, World Bank Publications, Washington DC.

Feldman, PE 1969, Efficiency, Distribution, and the Role of Government in A Market Economy, Institute for Defense Analysis, Washington.

Ndulu, BJ & Chakraborti, L 2007, Challenges of African Growth: Opportunities, Constraints, and Strategic Directions, World Bank Publications, Washington DC.

Nogués, JJ & Finger, JM 2005, Political Economy of Antidumping and Safeguards in Latin American, World, Washington DC.

Pate, S 2006, Social Studies Content Knowledge Test, John Wiley & Son’s Publishers, New Jersey.

Poynter, G & MacRury, L 2009, Olympic Cities: 2012 And The Remaking Of London. Design And The Built Environment, Ashgate Publishing, Ltd, London.

Preuss, H 2006, the Economics of Staging the Olympics: A Comparison of the Games, Edward Elgar Publishing, Massachusetts.

Smith, W 2005, World Development Report: A Better Investment Climate for Everyone, a World Bank Publication, Washington DC.

Toohey, K & Veal, AJ 2007, The Olympic Games: A Social Science Perspective CABI Publishing Series, Sydney.

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IvyPanda. (2021, February 18). Investment Climate Impact on Private Corporations. Retrieved from https://ivypanda.com/essays/investment-climate-impact-on-private-corporations/

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IvyPanda. "Investment Climate Impact on Private Corporations." February 18, 2021. https://ivypanda.com/essays/investment-climate-impact-on-private-corporations/.

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IvyPanda. 2021. "Investment Climate Impact on Private Corporations." February 18, 2021. https://ivypanda.com/essays/investment-climate-impact-on-private-corporations/.

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