Call for an Influx of Foreign Direct Investment in Africa

31/10/2012
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A group of African economic experts attending the seventh African Economic Conference in Kigali, Rwanda, on Wednesday highlighted the need to diversify efforts to mobilize foreign direct investment (FDI) to support the growth of African economies.

According to some of the experts, the impact of FDI needs to be assessed by the beneficiary countries themselves, while others believe it is up to the emerging nations that wish to invest in the continent to consider national priorities for the improvement of social welfare.

“Foreign direct investment is always welcome in Africa, provided that the impact can be proven and that there are positive consequences for economic growth and investment on the continent,” said Clare Akamanzi, Chief Operating Officer of the Rwanda Development Board.

Although some economic experts are convinced that the contribution of FDI to GDP is largely positive, especially for industrial production and services, others think it is just as important to ensure that funding can provide jobs for the unemployed, whose numbers are constantly on the rise in Africa.
One solution is possible for these economists, who seem more likely to remain pessimistic about the fact that in certain situations FDI in Africa is not really up to expectations.

In particular they are convinced that because the infrastructure deficit is one of the main factors that impede growth in Africa, governments on the continent must be prepared to understand these foreign investment portfolios.

“The thinking behind this strategy aims to ensure that funding really does contribute to the development of infrastructure,” explained Koukou Dzifa Kpetigo, economic researcher at the School for Advanced Studies in the Social Sciences, University of Paris-Est, in France.

Paradoxically, these criticisms from researchers show that there is still a long way to go before the impact of FDI on Africa’s economic growth can be proven.

Quoting the example of China, Mr. Kpetigo stressed that although African economists require outside financial aid in the form of FDI, this must be accompanied by an assessment of the national realities in beneficiary nations.

In the eyes of numerous economic experts, contrary to most Western countries, the influx of Chinese investment in sub-Saharan Africa has brought an added value to economic growth by supporting the increase in GDP in beneficiary countries.

“For some years Africa has been creating strong economic ties with emerging nations, especially China [...], but the main problem for beneficiaries of this investment remains the local workforce, which is not recruited to reduce unemployment on the continent,” Mr. Kpetigo complained.

Despite the contradiction revealed by the experts, estimates made by the Infrastructure Consortium for Africa (ICA), a partner of the African Development Bank (AfDB), show that Chinese investment in African infrastructure reached $9 billion in 2010.

In an official report the ICA states that, “In some cases, all this Chinese investment [in Africa] has made it possible to reduce, for a short time, the burden that weighs on public finances, and therefore to provide a clear added value to GDP growth.”

Furthermore, official statistics from the AfDB show that trade between China and Africa has risen more than tenfold during the past decade, increasing from US $10 billion in 2000 to US $127 billion in 2010, which makes China Africa’s leading trade partner.