<1.6 MULTINATIONALS (MNCs)> 

• Imagine you are the minister for development in your chosen country and you are TRYING TO ATTRACT MNCs TO INVEST IN YOUR COUNTRY, to do this you need to CREATE a speech explaining the benefits they will gain by choosing your country in terms of the factors mentioned above. you will need to produce this infographic and present it if chosen

• ...your desire to attract MNCs has met some opposition and you need to add to your speech Imagine to CONVINCE LOCAL STAKEHOLDERS why they should allow MNCs into the country using each of the 'PROS' listed above.

• In a strongly worded reply the OPPOSITION outlined why they were CONCERNED ABOUT THE POTENTIAL ARRIVAL OF MNCs. and used REAL WORLD EXAMPLES to illustrate some of the 'CONS' listed above.

Should Indonesia attract more FDI?

• Indonesia is one of the most attractive destinations in the world for FDI. Many multinationals are attracted to the country, which is the largest economy in Southeast Asia. The climate of political stability and the availability of young workers in the country with the fourth biggest population in the world are also important reasons why foreign producers choose Indonesia to open factories. Finally, investments seem highly rewarding in Indonesia because it is rich in natural resources, including natural gas, petroleum and minerals. It is also the world’s biggest producer and exporter of palm oil, a basic commodity used in food manufacturing, personal care and cosmetics, biofuel and energy, and many more industries.

• But investments in Indonesia entail certain risks. Corruption is still a problem for MNCs that want to invest in the country, even though it is gradually improving. Infrastructure is insufficient, and the country is located on the Pacific Ring of Fire so it often suffers from natural disasters such as earthquakes and tsunamis. Moreover, the business environment is complex and there are many entry requirements for foreign businesses that want to invest.

• The Covid-19 pandemic restrictions reduced FDI in the country from 2019 and onwards. This is a problem for Indonesia, which depends heavily on FDI for growth. According to OECD Policy Reviews 2020, FDI in Indonesia played a key role in increasing employment, productivity and exports. However, rapid growth (from investments in manufacturing) has created sustainability problems in Indonesia. The country is one of the biggest global emitters of

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• greenhouse gases, 60% of which are caused by forest degradation, deforestation and peatland conversion. According to the International Energy Agency, Indonesia’s share of renewable energy sources is still low.

• In 2019, the country announced a deductible tax of up to 200% for businesses investing in research and development (R&D) to attract FDI and to improve the productivity of capital in the country. Many policymakers in Indonesia stress the need for the country to deregulate its complex business environment to attract more investors and to increase FDI to pre-pandemic levels. However, not all agree. Opponents of FDI claim that the negative effects of multinationals in the country outweigh the advantages. They believe that the government should focus on policies to support domestic production and consumption for further economic growth.

1 Define the term ‘foreign direct investment’.

2 By applying a STEEPLE framework, identify two reasons why MNCs are attracted in Indonesia.

3 By applying a STEEPLE framework, analyse two risks for businesses interested in investing in Indonesia.

4 Explain two reasons why the government of Indonesia depends on FDI for growth.

[2] [4]

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        5 Evaluate whether or not Indonesia should continue relying on MNCs for economic growth.