Foreign direct investment by the local corporate sector : an evaluation

Abstract

This study evaluates the adequacy of outward foreign direct investment since 2000, and the applicability of potential investment by large Maltese corporate entities from different economic sectors, particularly in the European Union. This study also includes an evaluation of the means of financing such an investment. Foreign Direct Investment (FDI) is an investment involving a long-term relationship and a lasting interest by a resident entity in a foreign market. FDI can be seen as the territorial expansion of activities whereby an entity will produce the same or similar product or service in a foreign market, or for the for the purpose of exploiting raw materials, or to be nearer to the consumers through the acquisition of distribution outlets. The local corporate sector is quite aware of this type of investment and the number of respondents that claim to have already resorted to FDI further confirms this. This study shows that local entities consider the local market as being overcrowded and investment opportunities are arguably declining. Local entities view FDI as an attractive option particularly as a tool for growth, diversification and also as a source of higher returns than the local market. Europe seems to be the preferred market for FDI, particularly in view of Malta's imminent accession to the European Union and the FDI incentives provided to member states. In terms of the financing of FDI, local entities tend to favour a mixture of debt and equity capital whereas no clear preference was expressed between national and international financial markets. FDI seems to be the obvious choice for the Maltese corporate sector, since investment opportunities within the local market are declining and FDI could be the route to further expansion.