The Role of Fdi in Africa

TABLE OF CONTENTS

1.0 Introduction 2
1.1 What is FDI? 2
1.2 The background of Foreign Direct Investment in Africa 3
2.0 Motives for FDI in Africa 6
2.1The importance of foreign direct investment: 6
3.0 The Costs And Benefits Of FDI 11
4.0 Factors Influencing Investor Decisions 12
4.1 Reasons for low FDI in Africa 14
5.0 Initiatives taken by African countries to attract FDI 16
5.1 Incentives 17
5.2 Investment treaties 18
5.3 Investment Promotion 19
6.0 Policy Related Challenges of FDI 20
7. Efforts to Promote FDI in Africa 28
7.0 CONCLUSION AND RECOMMENDATIONS 33
7.1 Conclusions 33
7.2 Recommendations 35
References 37

1.0 Introduction
1.1 What is FDI?
Foreign Direct Investment (FDI) is defined as international interest in which a resident in one country obtains a lasting interest in an enterprise resident in another. It is a situation where a foreign country creates a subsidiary to provide goods and services. Thus a firm undertakes FDI in a foreign market if it possessed an ownership advantage over the local competitors. The ownership of the foreign investment usually remains in the investing (home) country. FDI represents the primary means of transfer of private capital (i.e. physical or financial), technology, personnel and access to brand names and marketing advantage.

In most countries, FDI serves as one of the engines of successful transition. To a certain degree, counter-intuitively, most FDI are market-seeking and efficiency seeking motives

In most countries, FDI serves as one of the engines of successful transition. To a certain degree, counter-intuitively, most FDI are market-seeking and efficiency seeking motives.

United Nations Conference on Trade and Development (UNCTAD.1999) findings, reveal that FDI continues to increase at a global level as Multinational Corporations (MNCs) integrate their business operations throughout the world. The report confirms that the FDI transfer technology as well as firm specific

References: Anderson, K., Dimaranan, B., Francois, J., Hertel, T., Hoekman, B., Martin, W., 2001 Basu, A., Srinivasan, K., 2002. “Foreign direct investment in Africa: some case studies” International Monetary Fund Working Paper, WP/02/61, March. Fischer, S., Hernandez-Cata, E., Khan, M. S., 1998. Africa: is this the turning point? International Monetary Fund Paper on Policy Analysis and Assessment, Fosu, A. K, 2001. The global setting and African economic growth. Journal of African Economies 10, 282-310. Ianchovichina, E., Mattoo, A., Olarreaga, M., 2001. Unrestricted market access for Sub-Saharan Africa: how much is it worth and who pays Rogoff, K., Reinhart, C., 2002. “FDI to Africa: the role of price stability and currency instability” International Monetary Fund Working Paper, March. Rodrik, D., 1998. Trade policy and economic performance in Sub-Saharan Africa. United Nations Conference on Trade and Development (UNCTAD), 2002a. United Nations Conference on Trade and Development (UNCTAD), 2002b. United Nations Industrial Development Organisation (UNIDO), 2002. Foreign Direct Investor Perceptions in Sub-Saharan Africa Borensztein, E., J. De Gregorio, and J-W. Lee. (1998), 'How Does Foreign Direct Investment Affect Economic Growth? ', Journal of International Economics, 45, pp Blonigen, B.A. and R.B. Davies (2000), 'The effects of bilateral tax treaties on US FDI activity ', NBER working paper 7929. Hanson, G. (2000), 'Should Countries Promote Foreign Direct Investment? ', paper prepared for G24 research Program. ILO (1998), Labour and Social Issues Relating to Export Processing Zones, Geneva. Lall, S. (2000), 'FDI and development: research issues in the emerging context ', Policy Discussion Paper 20, Centre for International Economic Studies, University of Adelaide. Madani, D. (1999), 'A review of the role and impact of export processing zones ', Policy Working Paper 2238, World Bank, Washington. Morrissey. O. and D.W. te Velde (2001), 'Study on the link between trade policies and domestic policies in developing countries ', report to the European Commission. Noorbakhsh, F., A. Paloni and A. Youssef (2001), 'Human Capital and FDI inflows to Developing Countries: New Empirical Evidence ', World Development, 29, pp UNCTAD (2000), World Investment Report, UNCTAD, Geneva.