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23.10.2007 Business & Finance

Foreign Direct Investment into Africa up


Foreign Direct Investment (FDI) into Africa doubled between 2004 and 2006 to a record of US$36 billion, spurred by the search for primary resources and increased profits, the UNCTAD World Investment Report 2007: Transnational Corporations, Extractive Industries and Development has stated.

According to the report launched in Accra, rising demand, especially from Asia, for oil, gas, and metals has led to an investment boom in mineral exploration and extraction, contributing largely for the increases in foreign direct investment (FDI) in many mineral-rich developing countries, notably in Africa.

The search for new resource reserves led to increased FDI inflows to Africa, least developed countries (LDCs) to the tune of $8 billion, after a two-year decline with Burundi, Djibouti, Guinea-Bissau, Somalia, Madagascar, Ethiopia, Cape Verde, Gambia and Sudan, where FDI inflows for new oil exploration and mining activities, as well as in the services sector, increased..

Mr Olle Ostensson, UNCTAD Representative, who led discussions on the report said despite these huge inflows, Africa still lagged behind other regions. Indeed, the region's share of the global FDI fell to 2.7% in 2006 from 3.1% in 2005.

He said the improved investment climate in many African countries also accounted for FDI flows to the region.

"Overtime the prospects for investment into Africa looks positive because of the hike in global commodity prices currently being experienced and the desire of TNCs, particularly from Asia, to take advantage of good returns on investment," he said.

The report, which dwelt extensively on TNCs role in the mining sector, said higher commodity prices had led to increased foreign direct investment in extractive industries, and especially in low-income countries, where transnational corporations (TNCs) dominate the extraction of natural resources.

The report noted that TNC involvement could provide both opportunities and challenges for developing countries and advocated coherent and well-designed policies to enable the country maximize development gains and to ensure that the activities of the industry reflect a commitment to the public good by all involved.

UNCTAD argues that the commodities boom should provide opportunities for development and poverty alleviation in mineral-exporting countries. But considerable efforts to address the economic, environmental, social, and political issues relating to mineral extraction are necessary for harnessing the earnings from extractive industries to boost development.

The report stressed that quality of governance, specific government policies and institutions of the host country were critical in ensuring sustainable development gains from resource extraction, with or without TNC involvement.

Governments need a clear vision and strategy to ensure that oil and other mineral resources are used in a transparent and equitable manner to contribute to sustainable development. They also need to strengthen their abilities and capacities for designing and implementing appropriate policies.

Mrs Esther Obeng Dapaah, Minister of Lands, Forestry and Mines, who launched the report, said government had a clear vision to promote value added services to the mining companies to enhance the benefits of Ghanaians from the industry.

Mr Ben Aryee, Chief Executive of the Minerals Commission, said the country had witnessed increased investment into the mining sector over the years.