Transcript FDI - CLAS Users

FDI, Export-led
industrialization and the private
market
African Economic Development
Renata Serra – March 1st 2007
Why may FDI be so important?
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Role of export-led industrialization
Lack of domestic saving and capital
FDI accelerates technology import
Possible impacts on employment and poverty
FDI – trends
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FDI increased a lot on a global level but only
marginally to SSA
Dramatic decline in relative FDI to Africa
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FDI share decline reflects declining shares in
world output, trade, investment and incomes
Low FDI means increasing debt
FDI and policies
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Attempts to attract FDI included:
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1985-92: liberalization and privatization
1992-on: transparency, accountability, credibility
Why has FDI largely eschewed SSA?
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Risk perception and poor investment climate
Poor infrastructures
Inadequate policies (trade and macro)
Weak governance
Nature of FDI to Africa
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High concentration
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¾ of FDI goes to oil- and mineral-rich economies
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High concentration of FDI in 5-10 countries
Most FDI comes from UK, France and US
Enclave sectors:
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Exceptions are Mauritius, Morocco and Uganda
Country’s GDP higher than its GNP
High ratio of export earnings to value added
“Footlose”: increased importance of M&A
over greenfield investment
Possible cons of FDI
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Enclave sectors
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Capital intensive
More volatile than manufacture
Footloose investment does not benefit local
economies
Limited positive spillovers
Bargaining power is in foreign company’s hands
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Conflicts between governments’ and TNCs’ goals
Environmental and other costs are to be considered
Why is FDI to Africa low?
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Abundant natural resource by itself will not do
Many point the finger to weak governance, yet:
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Business environment is improving
High rates of EPZs creation
Low inflation and low corporate taxes
Are TNCs really after good governance?
More likely obstacles:
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Low education, skills, and know-how
Lack of “technological effort” and absorptive capacity
Low K accumulation and economic structural changes