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13.09.2005 Business & Finance

FDI flows have not had developmental effects on Africans

By GNA
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Accra, Sept. 13, GNA - Both old and new round of Foreign Direct Investment (FDI) flows in Africa have not had the expected developmental effects for beneficiary nations, the 2005 United Nation Conference on Trade and Development Report has indicated.

The Report said FDI flows to the continent were targeted at a few nations and at capital-intensive sectors, which lacked linkages to the rest of the economy.

Speaking at the launch of the report on Tuesday; Dr Samuel Gayi, a Representative of UNCTAD, said even though the average annual FDI flows to Africa increased nine fold from two million dollars in 1980s to about 18 million dollars in 2003 and 2004, the findings showed a positive but weak and unstable association between FDI and growth in Africa. He cited other reasons such as limited fiscal impact relative to the export values generated, and said in many African nations, profit remittances exceeded the total FDI inflows to the beneficiary countries. "The scale of FDI and the benefits from it depend on attaining certain thresholds of a variety of macro-economic, institutional and structural conditions in the host economy.

"In effect there is more of a lag than a lead variable in the development process", he explained.

Dr Gayi said aside country specific factors, Africa's economic growth had suffered persistently from external constraints due to weak commodity prices, stagnant and falling Official Development Assistance (ODA), stalled industrialisation and weak domestic capital formation. He said strong evidence existed that most African states, which had been successful in attracting FDIs to the mining sector suggested that to date the trade-off had not been favourable for them particularly when their export booms were considered.

Dr Gayi said the challenge for policy makers in Africa's resource rich countries must be how to avoid the problem of enclave development while maximising the benefits or minimising costs. "This is likely to involve a reversal of the current sectoral approach to attracting FDIs in favour of a holistic one that emphasises the contribution of the sector to much wider development objectives through backward and forward linkages, including higher value added processing activities," he said.

The Report according to Dr Gayi, reached three main conclusions to resituate FDIs in the broader context of African development to form the basis of alternative policy framework.

He said even though domestic and international forces vary across countries and over time, little evidence existed that market forces, left to themselves; would generate the desired resources in Africa or provide the requisite degree of coordination.

Dr Gayi said the way forward would be to establish a developmental state through the reinvigoration of public sector investment to kick-start growth and establish a more dynamic profit-investment nexus.

Mr Kwamena Bartels, Private Sector and President's Special Initiative (PSI) Minister, who launched the Report lauded its depth and frankness saying: "...It explores our thinking on the role of FDIs in Africa in the last few decades and the impact that our policy prescriptions and directions have had on the growth and development of the Continent."

He said such an analytical and empirical report should enable the country to dispassionately assess what had worked and what had not and why in order to shape the future of the Continent.

"We must put aside political, parochial and personal interest and harness the thinking from the entire spectrum of our society to enable Africa to forge ahead in unity," he said.

The Minister said the report raised important points such as the promise of automatic efficiency gains from hosting FDI, which might not happen and might also not lead to addition to productive assets and crowded in investments as would be expected.

"How do we restructure ODA so that a part of it goes into generating production and growth and not as it is at the present state where 40 per cent goes into technical assistance," Mr Bartels said.

He said for too long the international community particularly the lending institutions adopted a one-sided-fits-all to address the problems of developing countries while country specific factors were downplayed.

He said a more balanced framework for evaluating FDI must weigh up the accompanying costs and benefits in relations to the country's development goals adding: "We need to strike the right balance- Policy should be adopted to individual country circumstances."

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