International Investments

 
 
 

Vocabulary

border	pay off	independent
equity	escalate	make its way
lamb	sensitive	capital (2)
timid	run away	uncomfortable
least	recession	infrastructure
wage	flow (2)	transformation
scare	scare off	authoritarian
invest	inflation	pull out (2)
era	boom (2)	live beyond your means
receive	as long as	dependent on
policy	standstill	central bank
willing	case (3)	no longer the case
borrow	elsewhere	make sure
slip (2)	slow down	attractive (2)
lend	chalk up	receiving end
decent	guarantee	uncertainly
soar (2)	sound (2)	out of favor
debt	share (2)	grow/grew/grown
		finance (2)

 
 
 
 

Video: International Investments

 
 
 
 

Transcript

Money makes the world go round. It knows no borders. Companies go wherever they think it will pay off. They build factories, or invest in shares and equities.

That’s how money makes its way from one country to another.

In 2017, $1.4 trillion worldwide were poured in foreign direct investment.

But money is sensitive.

Businessman: “Capital is actually a timid little lamb.”

When capital starts to feel uncomfortable, like in Turkey, it runs away.

In recent years, Turkey has been attractive for foreign investors, not least due to low-wages and strong economic growth. Capital flowed into companies and infrastructure there.

But the government’s transformation into a more authoritarian state has scared many investors off. Inflation has escalated. The Turkish lira fallen. Foreign capital has pulled out.

Jorg Kramer, Chief Economist, Commerzbank: “Turkey has lived beyond its means for years. The boom of the Erdogan era was dependent on credit. And that was fine — as long as Turkey had a sound economic policy, and an independent central bank that guaranteed the value of the currency.

But that’s no longer the case.

So of course, foreign investors aren’t willing to finance this boom anymore, as they were before.”

If investors don’t get the return they want in one country, they simply move their money elsewhere.

Jorg Kramer, Chief Economist, Commerzbank: “There’s a lot of uncertainty in Turkey. It will cause the economy to slow down significantly, and maybe even slip into a recession.”

In 2017, most foreign capital was directly invested in Asia, around $470 billion. Europe was on the receiving end of around $300. North America chalked up around the same amount. Around $150 billion of direct investment went to Latin America. And just over $40 billion to Africa.

Jorg Kramer, Chief Economist, Commerzbank: “If you want to convince people to lend you money, you have to show them that you’ve going to do something decent with it, something that offers decent returns, because you have to use these returns to pay the money back to lenders abroad.”

Entrepreneurs who borrow money have to make sure to remain good enough to pay back investors.

Jorg Kramer, Chief Economist, Commerzbank: “That means the country needs a sound, economic policy.”

While Turkey is out of favor with foreign investment, China is in a much more attractive position. It’s economy has been soaring for years. Companies there are growing, which is good news for investors.

Chinese investors are also investing money in foreign countries, like the US. They’re helping to finance economic growth for North America. The US is the world’s biggest receiver of foreign capital, and the country that is most in debt to China.

Money goes where there’s money to be made. And without direct foreign investment, the world economy would come to a standstill.

 

 

Questions

1. Business people always prefer to make investments in their own countries. True or false?

2. Businessman: “Capital is actually a timid little lamb.” What does this mean?

3. What had happened in Turkey? Did the economic, financial and political situation remain the same?

4. Are investors very patient, sticking it out for the long-term?

5. All parts of the world receive equal foreign direct investment. Is this right or wrong? What is the main criterion for making investments?

6. Are China and Turkey in the same status in terms of outlook?

7. The flow of money is always and only from richer to poorer countries. Is this correct or incorrect?

 

A. Do many foreign entities invest in your country? Give examples. Why have they make investments?

B. Businesses from my country invest abroad. Yes or no? Where do they invest? Why do they invest there?

C. How do people feel about international investments? Is there any opposition or controversy?

D. What will happen in the future?

E. Are there risks or problems with foreign investments?

F. What should businesses and governments do?