Did you know that 50% of ZBIN board members are Diasporans? We deliberately arrived at this decision because of commitment to Diaspora engagement and investment. USA is represented on the board with two board members; UK has two board members and South Africa has one representative. We will be creating an expanded ZBIN council so as to ensure that we cover all regions across the globe such as Australia, Botswana, Malawi, Mozambique, Canada and Namibia. We would like our Diaspora Community to play an increasing role on the forum by directing Policy Design and Review. We would like ZBIN to play an increasing role in Diaspora Advocacy in terms of investment in Zimbabwe. This is why we have been covering Diaspora Engagement for the past 2 years and will continue covering it in future.
Our second article on Diaspora Engagement involves Diaspora Driven Investment (DDI) which should be a new term for most of our followers because we are used to Foreign Direct Investment (FDI).
According to Debass and Ardovino, DDI is distinct from FDI in that it relies on ‘a transnational social network made up of migrants and migrant mechanisms operating between host and home countries. The migrants are the linchpin because they have a unique knowledge of their homeland and culture. These factors make the migrants a more viable facilitator of capital acquisition and investment.
In illustrating this point Leblang provides the example that a migrant community from India residing in the US can provide US investors with a signal of the work ethic, labour quality, and business culture that exists in India. These signals enhance the quality of information that US investors have about India allowing them to make forecasts about their ability to invest in potentially profitable assets offered on the Indian market. Indeed, ‘migrant networks influence investment by facilitating the familiarity effect and by decreasing constraints imposed by information asymmetries and transactions costs.’
Companies like Yahoo, Hewlett Packard and General Electric have opened R&D centres in India largely because of the confidence engendered by the presence of many Indians working in their US operations. This points to the cognitive effects arising from the projection of a coherent, appealing, and progressive identity on the part of the diaspora which signals an image of prosperity and progress to potential investors and consumers So why do diaspora members provide direct investment in their home country? Nielsen and Riddle have conducted extensive research into answering this question and they suggest that ‘Some diaspora members are interested in investing in their homeland because they expect a financial return; others are driven by the possibility of social recognition from within their diaspora communities and organizations. The investment interest of other diaspora members may be motivated by the potential emotional satisfaction they will receive when investing in their homelands.
It is evident that, whatever the motivation may be, diaspora members are playing an increasingly important role in increasing FDI flows into their home country and determining the destination of outward direct investment from the home country. ‘Contacts and social networks (known in China as guanxi) are one of the essential ingredients for the Chinese when doing business. The presence of overseas Chinese in a certain country may therefore reduce the risks and costs associated with identifying business opportunities by Chinese companies thus favouring Chinese outward FDI.’ With many economists believing that China is on track to be the world’s largest economy by 2030, it is no surprise that FDI has been a major factor in the emergence of China as a manufacturing and trading powerhouse in the 1990s. The importance of Chinese DDI is evident from the fact that about 80 per cent of all foreign investment – some $200 billion which has poured into China since 1980 has come from overseas Chinese.50 Similarly, ‘the strong ties between the Italian diaspora and their homeland have also boosted inward FDI. In this case the mechanism at work was constituted mainly by the valuable information on business opportunities in Italy that companies managed by emigrants utilized to invest in Italy from abroad.’ Speaking on the role of investment by the Caribbean diapora, Rampersad notes that the diaspora is ‘deeply sympathetic to nation building… [and is] more inclined to invest their resources beyond the call of duty because their drive is more zealous and passionate than potential non West Indian investors.’52 Furthermore, ‘the Diaspora is amongst the best equipped to shoulder the responsibility as the sons and daughters who have proven their abilities in the global market place.
Did you know that 60% of ZBIN board members are Diasporans? We deliberately arrived at this decision because of commitment to Diaspora engagement and investment. We would like our Diaspora Community to play an increasing role on the forum by directing Policy Design and Review. We would like ZBIN to play an increasing role in Diaspora Advocacy in terms of investment in Zimbabwe. This is why we have been covering Diaspora Engagement for the past 2 years, we will continue to cover it in the future. Our second article on Diaspora Engagement involves Diaspora Driven Investment (DDI) which should be a new term for most of our followers because we are used to Foreign Direct Investment (FDI).
An interesting initiative in promoting DDI is the African Diaspora Marketplace (ADM). The ADM is a business plan competition designed to support economic development in Sub-Saharan Africa and allows the US-based African Diaspora community to directly invest in viable small and medium enterprises. In 2010, fourteen diaspora-driven businesses in seven countries were awarded matching grants ranging from $50,000 to $100,000. Winning entries ranged from a commercial plant tissue culture business that uses biotechnology to increase yield and quality of produce for Ethiopian agriculture producers, to a franchise business model that will empower female nurse entrepreneurs to improve access to healthcare and reduce the burden on government hospitals in Ghana.
The brain gainer: In many countries, talented and highly educated émigrés have returned to their home countries to tap into promising opportunities there. As these professionals return to their countries, they bring knowledge and technology as well as capital and access to advanced markets in developed countries. Furthermore, they can serve as advisors and role models to domestic businessmen and even advise government officials on effective oversight and regulatory issues.
The altrustic technologist: Diasporas are major conduits of technology and business know-how to their home countries and are prompted by altruism and a general goodwill to invest in their home countries. DDI is also superior to FDI because diaspora groups are better informed about the capabilities and technology necessary for working in their home country. Due to the diasporas cultural and socio-economic linkage with their home countries, their importation of technologies will be in tune with local realities and cultural sensitivities. Thus, they are more likely to import and implement appropriate technologies than foreign investors who have little experience doing business in the homeland.
The brave capital investor: Palestinian, Armenian and Cuban diaspora interest in homeland investment is driven by a perceived ethnic advantage and this makes these brave investors more likely to engage in DDI, given known risks. Altruism and a sense of cultural connectedness are also significant factors in such decisions. Diaspora investors’ willingness to invest and develop world-class industries in Taiwan and China, in spite of questionable fundamentals and serious business impediments, provides striking evidence of this fact in support of their superior abilities in coping with the shocks. n The catalyst: Many scholars have noted a catalytic effect of DDI on FDI. In China and Israel, diaspora investors and entrepreneurs played a critical role in attracting nonresident FDI by setting up joint ventures and promoting export for domestic companies.
The diplomat: DDI works in the interest of US commercial policy and diplomacy. First, it expands market-driven economies amenable to US economic interests. DDI can also be a powerful vehicle for commercial diplomacy. Commercial diplomacy in the form of sustaining and supplementing positive linkages between Western developed economies and the global economic system, provides a powerful foundation for many foreign policy and national security goals.
Benefits of diaspora-assisted FDI There are a number of important factors that favour diaspora-led FDI activities versus the normal investment attraction approaches.
- Firstly, diaspora members are an excellent resource beyond pure capital. They occupy an intermediary position between the flows of capital, labour, knowledge and a host of other resources. Additionally, they assist in the transference of a variety of skills to the country of origin in the form of tacit knowledge.
- Diaspora members not only serve as important potential investors, but can be seen as the ‘first-movers’ into a country which may act as a catalyst for further investment by nondiaspora members. In relation to the Armenian diaspora, Freinkman notes that ‘when compared to the average economic agent, diaspora businessmen and professionals face a lower risk of becoming the first movers. They benefit from a specific informational advantage: common cultural background and established social links between diaspora and local entrepreneurs help them to reduce transaction costs of new entry and building new partnerships.’
- Emotional connections to their country of origin and feelings of duty and obligation may motivate diaspora members to invest despite unfavourable economic conditions.
- Members of the diaspora may help to encourage FDI by providing market and operational information about the homeland to potential investors and brokering relationships with buyers, suppliers, partners, government officials and lending institutions in the homeland.
- Beyond direct investment, diaspora members can support the Government’s investment agency’s objectives in a variety of other ways including assisting in the flows of venture capital and in the academic space by connecting to international peers and collaborators to create global innovation networks.
- Diaspora members often have knowledge about investment opportunities, information about regulations and procedures, or familiarity with language and customs of the homeland that can decrease the transaction costs associated with cross-border investment.
