SOCIAL COST OF MNC'S
This article discusses the basic techniques of social return evaluation used by host government analysts of developing countries in their decision making concerning foreign investment proposals. Once the multinational manager understands these basics, he is in a position to make a fair prediction of the reception his proposed project is likely to receive. This social return approach is not too different from concepts that the MNC manager already understands. But the differences in approach can make an investor’s project unacceptable to the government officials, or they can lead a government official to grant incentives to a foreign investor for a project that the investor himself would otherwise not accept.
More and more these days the governments of developing countries are closely and systematically scrutinizing projects proposed by foreign investors. The most frequent technique for each project examination is some form of social cost/benefit evaluation.
Though such analyses are encountered most regularly in developing countries, similar approaches have been used widely in Europe for some time.
Even in North America the methodology of social analysis is apparent in the work of government regulatory agencies and commissions that deal with private business.
Unfortunately, in most instances the multinational businessman lags far behind the host government’s analysts in understanding the evaluation technique, even though the outcome of the examination determines the future of his project.
Although host government officials often use terminology that is strange to the businessman, their economic analyses are not all that different from those the foreign investor himself undertakes when he considers a potential project. Hidden behind the fancy terms, such as “shadow exchange rates,” “domestic resource cost,” or “social cost/benefit,” lies a method of analysis that is only three steps removed from the pro forma income statements of the manager.
True, those three steps, which I shall discuss shortly, may make the investor’s profitable plans look terrible to the government; or they may mean that the government strongly encourages a project that is not very appealing to the businessman without subsidies or grants.
FRANCIS GEORGE
3014
This article discusses the basic techniques of social return evaluation used by host government analysts of developing countries in their decision making concerning foreign investment proposals. Once the multinational manager understands these basics, he is in a position to make a fair prediction of the reception his proposed project is likely to receive. This social return approach is not too different from concepts that the MNC manager already understands. But the differences in approach can make an investor’s project unacceptable to the government officials, or they can lead a government official to grant incentives to a foreign investor for a project that the investor himself would otherwise not accept.
More and more these days the governments of developing countries are closely and systematically scrutinizing projects proposed by foreign investors. The most frequent technique for each project examination is some form of social cost/benefit evaluation.
Though such analyses are encountered most regularly in developing countries, similar approaches have been used widely in Europe for some time.
Even in North America the methodology of social analysis is apparent in the work of government regulatory agencies and commissions that deal with private business.
Unfortunately, in most instances the multinational businessman lags far behind the host government’s analysts in understanding the evaluation technique, even though the outcome of the examination determines the future of his project.
Although host government officials often use terminology that is strange to the businessman, their economic analyses are not all that different from those the foreign investor himself undertakes when he considers a potential project. Hidden behind the fancy terms, such as “shadow exchange rates,” “domestic resource cost,” or “social cost/benefit,” lies a method of analysis that is only three steps removed from the pro forma income statements of the manager.
True, those three steps, which I shall discuss shortly, may make the investor’s profitable plans look terrible to the government; or they may mean that the government strongly encourages a project that is not very appealing to the businessman without subsidies or grants.
FRANCIS GEORGE
3014
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