FDI is playing an increasingly prominent role in the design of economic development strategies in the hope that it will help alleviate poverty without accumulating further debt. But can the policy focus on attracting FDI actually distort long-term growth potential?
| Where does FDI in Africa go? |
| Extraction of Africa's natural resources accounts for the uneven spread of FDI flows across the continent. The 24 African countries classified by the World Bank as oil- and mineral-dependent have, on average, accounted for close to three quarters of annual FDI flows over the past two decades. This has created structural biases where the FDI regime has low value added, limited reinvested earnings and periodic profit surges. |
| New jobs and technology transfer |
A key issue is the role of FDI in creating new jobs and facilitating technology transfer:
"There is an assumption that the productive assets bundled into FDI readily spill over to the local economy through competition, imitation, labour turnover or vertical linkages. But in a world where markets fail, scale matters, oligopolistic power is significant… In such a world, there are plenty of reasons why a one-sided focus on efficiency gains is likely to overestimate the size of positive spillovers from FDI and to underestimate the possible costs, as well as downplaying potential conflicts of interest between TNCs and host governments."
(Economic Development in Africa Report 2005) | |
| Balancing costs and benefits |
| The idea that Africa is a reluctant host to foreign capital is a myth. On the contrary, a recent UNCTAD report on FDI in Africa points out that attracting FDI has become the industrial policy of choice for many governments, with incentives for foreign firms amounting to a kind of subsidy, displacing policies to nurture local firms and encourage domestic investment. A more balanced framework needs to weigh up country and sector specific costs and benefits. |
These issues will be discussed during the item on "Economic Development in Africa" at the meeting of UNCTAD's Trade and Development Board
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