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FDI, Export-led industrialization and the private market

FDI, Export-led industrialization and the private market. African Economic Development Renata Serra – March 1 st 2007. Why may FDI be so important?. Role of export-led industrialization Lack of domestic saving and capital FDI accelerates technology import

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FDI, Export-led industrialization and the private market

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  1. FDI, Export-led industrialization and the private market African Economic Development Renata Serra – March 1st 2007

  2. Why may FDI be so important? • Role of export-led industrialization • Lack of domestic saving and capital • FDI accelerates technology import • Possible impacts on employment and poverty

  3. FDI – trends • FDI increased a lot on a global level but only marginally to SSA • Dramatic decline in relative FDI to Africa • FDI share decline reflects declining shares in world output, trade, investment and incomes • Low FDI means increasing debt

  4. FDI and policies • Attempts to attract FDI included: • 1985-92: liberalization and privatization • 1992-on: transparency, accountability, credibility • Why has FDI largely eschewed SSA? • Risk perception and poor investment climate • Poor infrastructures • Inadequate policies (trade and macro) • Weak governance

  5. Nature of FDI to Africa • High concentration • ¾ of FDI goes to oil- and mineral-rich economies • Exceptions are Mauritius, Morocco and Uganda • High concentration of FDI in 5-10 countries • Most FDI comes from UK, France and US • Enclave sectors: • Country’s GDP higher than its GNP • High ratio of export earnings to value added • “Footlose”: increased importance of M&A over greenfield investment

  6. Possible cons of FDI • Enclave sectors • Capital intensive • More volatile than manufacture • Footloose investment does not benefit local economies • Limited positive spillovers • Bargaining power is in foreign company’s hands • Conflicts between governments’ and TNCs’ goals • Environmental and other costs are to be considered

  7. Why is FDI to Africa low? • Abundant natural resource by itself will not do • Many point the finger to weak governance, yet: • Business environment is improving • High rates of EPZs creation • Low inflation and low corporate taxes • Are TNCs really after good governance? • More likely obstacles: • Low education, skills, and know-how • Lack of “technological effort” and absorptive capacity • Low K accumulation and economic structural changes

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