Libya Crisis: Limitations or Demerits to FDI

Recents events in Libya have caused major TNCs (Transnational Companies) to pull their staffs out of the country. This and other major activities in Libya have caused an adverse effect on crude extractors and an increase in the price of crude in the global eceonomy. TNCs in areas like Libya have one main reason to go multinational and that is the need for the raw materials the country has to offer.

As TNC's in Libya are mainly after raw materials, they must have considered the effect of importing crude from developing countries but a major impediment is the sale of know how and corruption in developing countries. As much as it is easy to transfer the knowledge of extracting crude, there are very huge investments to be made i.e. equipements e.t.c. Today in most TNCs in Africa, although legislation makes it clear that the knowledge of extracting crude must be transfered to locals and the locals must occupy a fraction of the management, corruption makes it easy for TNC's to have their own management and exclude locals of the environment.

Due to the lack of knowledge of crude extraction and the heavy corruption and the economic instability in countries like Libya, a raw material seeking multinational has no option but to invest in the country and whether through all its impediments.

Also, theories like the Eclectic Paradigm by (Dunning, 1988) which states that "A location advatage of locating a particular economic activity in a specific location because of the characteristic (neutral or acquired) of the location". This clearly supports my ealier arguement that TNCs in developing countries are there due to the natural resources extractable from the area.

Ideally, FDIs in countries like Libya should cause major developments and advancements in its economy but the major corruption issue in countries like this make it hard to spot out the advantage of FDI and when issues of this nature i.e. crisis in Libya, pops up it affects the global economy. I beleive, if these TNCs' apply the governance applied in developed countries to the activities in developing countries, major changes will be recorded and a movement of such would see developing countries emerging to the greater economy.