21 February 2014

Foreign Investments Have Yet to Deliver On Development

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Foreign Direct Investments (FDIs) have not essentially delivered on the development outcomes that were expected from them in Eastern Africa.

This was the consensus reached by Eastern Africa experts who met in Kinshasa's Intergovernmental Committee of Experts meeting.

"We are not saying that Foreign Direct Investment is unimportant, but the amount of jobs being created by foreign investors is very small compared with the scale of the employment challenges of the region. In addition, the kind of linkages and spillovers from FDI with the domestic economy are often weak or non-existent", said Antonio Pedro, Director of UNECA'

As a consequence, the contribution of FDI to regional development has not been as much as would have been hoped for" Sub-Regional Office for Eastern Africa. "Given this scenario, ultimately there is no alternative to building up domestic capabilities and national firms, and it needs to be put at the top of the agenda for countries of the region", Pedro added.

The UNECA 'Tracking Progress on Macroeconomic and Social Developments in the Eastern Africa Region 2012-2013', which covers the 14 member states of the UNECA Sub-Regional office of Eastern Africa, notes that this group of countries have managed to double their participation in global FDI inflows during the last decade - no mean feat given the enormous upswing in FDI globally over recent decades.

In Africa as a whole, FDI inflows to Africa increased by 5 per cent in 2012 to nearly $50 billion - significantly more than the total aid received. Preliminary figures suggest another 7 percent increase in 2013.

The Democratic Republic of Congo has been among one of the main beneficiaries of the recent increases in FDI to the continent, reaching a record inflow of USD 3.3 billion in 2012. China has been especially active in DRC in recent years, with its FDI flows rising from just USD 38 million in 2006 to USD 631 million in 2010.

Andrew Mold, a Senior Economic Affairs Officer with UNECA, said that the key question is whether the Eastern Africa region can attract FDI in the quantities and 'quality' desired to accelerate structural transformation. Past performance suggests that this may be difficult.

"For instance, the United States is still the largest source of foreign direct investment in the world. Yet according to United States' Department of Commerce data, of a total number of 25,000 majority-owned affiliates globally, just 17 US firms were active in the 14 Eastern African countries in 2010. And not one in the region registered any appreciable Research & Development activity", he explained.

The four-day Intergovernmental Committee of Experts meeting in Kinshasa also examined the main policy pillars required in creating and supporting "National Champions", through the lens of 'Afrocapitalism', a private sector-led partnership initiative focused on Africa's development:

"The national champions we are talking about here are individual firms - men and women of vision - with the ability, skills, knowledge, and drive to harness business opportunities arising from this continent.

A growing number of African risk-takers are embracing the Afrocapitalism revolution and becoming the prime driver of growth and structural transformation on the continent", explained Pedro.

Pedro said that, in terms of demographics, Africa is a young continent, with a growing middle class, and is urbanizing rapidly.

Despite these promising trends, "if we don't generate jobs for our young people, we will have to confront serious social and economic problems. We will not enjoy the necessary degree of social cohesion to make growth sustainable. Generating sufficient jobs for our youth is a vital issue," he concluded.

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