Introduction

Foreign Direct Investment (FDI) in Africa has increased only to some extent in recent
years which can make a major impact to the continent's economic growth, as Africa's
reputation among many foreign investors has been appearing to be one of the
continents mostly synonymous with political uncertainty, economic instability, deadly
diseases and natural calamities. These issues still exist in some African countries and
are a significant obstacle to the growth of these nations, however slight effort is
frequently made to distinguish between the individual situations of more than 50
countries on the continent. Since 1990’s, African countries considerably liberalized the
environment for foreign investment. [ CITATION UNC99 \l 1033 ] Most FDI inflows are
attracted by the extractive industries in Africa, such as oil and mining. This form of direct
investment seems to be more volatile, which explains the unpredictable fluctuations in
FDI inflows in the case of these two countries i.e. Congo and Mozambique. [CITATION
Adn20 \l 1033 ]

Figure 1: Top five developing countries most dependent on FDI inflows, as measured by FDI inflows as % of GDP (minimum US$ 3
In 2018, FDI flows
billion toinflows
in FDI Africa haveCITATION
in 2018)[ risen by 11%
Adn20 to ]$46 billion, but below the 10-year
\l 1033
annual average (at about $50 billion). The increase in flows was mainly due to the
continuation of resource-seeking investments, the gradual expansion of diversified
investments in a few economies and the more than doubling (from $2 billion to $5.3
billion) of FDI flows to South Africa.[ CITATION UNC19 \l 1033 ] At a period when FDI was
still in recession, the COVID-19 crisis struck, with the continent having seen a 10
percent decrease in inflows to $45 billion in 2019. In the midst of the double shock of
the coronavirus pandemic and low prices of commodities, especially oil, the tendency of
declining foreign direct investment in Africa was expected to worsen significantly in
2020. [ CITATION UNC20 \l 1033 ] Foreign Direct Investment flows dropped by 28 percent in
the first six months of 2020. FDI flows in Africa reached $16 billion between January
and June 2020, compared to $23 billion during the same duration in 2019. [ CITATION
Eco201 \l 1033 ] There was a 72 percent drop in the number of cross-border merger and
acquisition (M&A) ventures targeting Africa from the monthly average of 2019. [ CITATION
UNC20 \l 1033 ]

African countries should put extra efforts in attracting FDI because one in three Africans
i.e. 422 million people live below the global poverty line where they represent more than
70 percent of the world’s poorest people. [CITATION Kri191 \l 1033 ] By providing financial
services, technological spillovers, improving human capital, reducing unemployment
and creating stable as well as long-lasting real GDP, the inflow of FDI would help grow
the economic sectors in Africa. Further elaboration about attracting FDI by African
countries and efforts made by them will be described in the paragraphs below.

 Should African countries attract FDI?

“According to the African Development Bank, the continent holds about 30 percent
of the world’s known minerals and half of its uncultivated arable land.” [ CITATION
Ton16 \l 1033 ] Africa offers opportunities for FDI returns, which totaled $52.6 billion in
2013. FDI has risen rapidly in Africa, increasing by 12.9 percent in 2013. In Sub-
Saharan Africa, FDI projects grew especially fast increasing the number of projects
by 4.7%. The 750 projects undertaken have had a major impact on economic growth
and development, creating 108,952 jobs. [ CITATION Jam14 \l 1033 ] For the
infrastructural development, FDI has helped a lot in Africa. Investment deals worth
more than $1.7 billion have been signed by Tanzania and China, including one to
construct a satellite city to relieve pressure in the commercial capital of Dar es
Salaam, expanding Beijing's links to East Africa. [ CITATION REU14 \l 1033 ] Twelve
European companies have already invested 400 billion euros in the “Desertec
Industrial Initiative (DII) plan to build solar power generators in North Africa and the
Middle East which aims to harvest solar energy for European consumption.
[ CITATION DW09 \l 1033 ]Such initiatives increase the economic capacity of countries
as well as the productivity of their workers. There are also a variety of claimed
benefits at the microeconomic level, notably higher productivity through new
investments in physical and human resources, increased jobs, better management,
and technology transfer. It is also believed that foreign investment has substantial
spillover effects on local businesses through supply and distribution chains, trading
and outsourcing. [ CITATION Tod04 \l 1033 ]
In Sub-Saharan Africa, FDI has helped countries to overcome their savings gap issue
by creating job opportunity to unskilled and semi-skilled people. For instance, the
building of the Standard Gauge Railway in Kenya has obtained 90% of its funding from
Exim Bank of China. This project would recruit 30,000 Kenyans and subcontract 40
percent of the jobs to local Kenyan companies. This could raise the income of both
those working in the project and the wider community. Despite of being a poor and
badly governed nation, Uganda’s private sectors are gaining stability since 1988 as the
country’s exports have expanded from “tea and coffee to soaps, oils, beer, cement, iron,
steel, and machinery” as a result of supportive FDI in these industries. Nigeria has also
benefited from human capital spillovers after FDI enabled the rapid growth in industries
such as Pharmaceuticals and telecommunications where many citizens came to know
about as well as use the mobile banking technology. [ CITATION Jam14 \l 1033 ]

Below is the figure of top 15 recipients of FDI in Africa where South Africa is leading in
FDI projects with Egypt taking a lead in capital investment and jobs. The high level of
FDI in South Africa is due to its diverse and quite large economy, which offers more
investment opportunities. On the other hand, Rwanda a nation having small economy
attracted more FDI which provides clear evidence that economic change and business
focused policies draw greater interest from investors. Despite having no extractive
opportunities, and a limited population of 12 million people, it ranked 17th on the FDI
score, marginally below Zambia and Mozambique.
https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/attractiveness/ey-africa-
attractiveness-report-2019.pdf
Based on resource-seeking FDI theory, it is stated that many foreign investors are
attracted to invest in Africa as the continent is endowed with significant natural
advantages such as solar, bio-fuel, iron, gold, cocoa beans, diamonds, natural gas and
so on. Africa cannot just wait for many years for the technologies to improve because
energy investment is highly needed now and by the help of inward FDI in many nations
it is being achieved. It is also seen that Chinese investment in Africa's fertile but
underdeveloped farmland has increased farm productivity and income while helping to
hold world food prices down, benefiting millions of the poorest citizens.
https://www.tutor2u.net/economics/reference/foreign-direct-investment-in-africa

FDI, however, has had a little impact in terms of job growth in these fast growing
industries. For example, technology, media and communications although being the
largest recipient of investment at 20 percent of African FDI, it has created only 7.5% of
the jobs. Likewise, financial services having 15% of FDI and 17.5% of projects has
created only 2.7% of new jobs. This proposes that African workers are not included in
these rapidly growing, knowledge-based sectors, and reducing human capital spillovers.
In addition, the use of migrant workers has distracted human capital gains away from
African residents. So because of the risk of foreign takeovers and fear of loss of control
over economies, the host country will feel discouraged and will not benefit even from
higher inflows. https://www.tutor2u.net/economics/blog/has-africa-benefitted-from-foreign-
direct-investment Moreover, corruption in African countries is hindering economic,
political and social development. One research conducted among citizen’s shows that
more than one in four people who accessed public services such as health care,
education had paid the bribe which was equivalent to approximately 130 million citizens
in the 35 countries surveyed. https://www.transparency.org/en/news/citizens-
speak-out-about-corruption-in-africa
The negative trends can be seen in the institutions, macroeconomic environment,
financial market and innovations.
According to institutional theory, any country should have strong legal, political and
economic institutional qualities such as the respect for the rule of law, lower corruption,
political stability, adequate infrastructure and so on to attract as well as benefit from
inward FDI. But many African countries which are less developed have poor institutional
quality because of which many people are unemployed and economic growth is
hindered. https://www.abacademies.org/articles/fdi-fpi-and-institutional-qualityevidence-
from-african-countries-7493.html

http://reports.weforum.org/global-competitiveness-index-2017-2018/sub-saharan-africa/

By seeing the analysis above, it is concluded that African countries should attract FDI
and inward FDI has been very beneficial in overall development of African countries but
still there is scope for increasing the attractiveness of the African market to the potential
investors/firms. Many nations in Africa are not being fully benefited by FDI because of
inadequate infrastructure, logistics, insecurity and institutional weakness which should
be eliminated.

 What efforts to attract FDI have been made in these countries?

Several African countries have attempted to develop their business environment over the
past decade in order to attract international companies. It is a difficult task to create a
competitive business environment because it takes time, not only to enforce policies, but
also to motivate potential investors. In 1997, it was discovered that Mozambique, Namibia,
Senegal and Mali were regarded as having the most attractive investment environments
where those nations were able to draw significant inflows of FDI, more than countries with
a larger local market (Kenya, Cameroon, Congo) and natural resources (Congo,
Zimbabwe). The major areas by which particularly these two countries i.e. Mali and
Mozambique were successful in attracting FDI were as follows:
 Firstly both the countries had stable macroeconomic environment for a long period
of time.
 Political climate was also secure.
 Both countries used aggressive trade liberalization and privatization programs
(especially Mozambique) to attract foreign investors.
 Implementation of new laws including new Mining and Investment codes in Mali and
a new Industrial Free Zone regime in Mozambique.
 Moreover, the adoption of international treaties related to FDI helped to increase
the Governments’ visibility in the international business community as well as
provided additional insurance to potential foreign investors.
  Last but not least, the Presidents have played an important role in promoting their
countries abroad, both in the case of Mali and Mozambique.
 Developing a few priority projects that have a multiplier effects on other investment
projects.
 Mounting an image building effort with the participation of high political figures,
including the President.

https://www.researchgate.net/publication/2518437_Foreign_Direct_Investment_in_
Africa_Policies_Also_Matter

In Africa, FDI policies are improving such as profit repatriation is now allowed in most
countries, tax incentives are common, the number of industries open to FDI is growing,
and privatization and trade liberalization are gaining widespread acceptance in many
regions. Privatization projects have made changes in telecommunications technology and
this has decreased transactions expenses.
Another attractive country to investors in North Africa is Egypt, which became Africa's
second-largest economy in 2016. Egypt is beginning to recognize the benefits of economic
changes, such as a decrease in income tax rates and new ways to settle commercial
conflicts.https://www.flandersinvestmentandtrade.com/export/sites/trade/files/market_studies/E
%26Y%20-%20AFRICA%20ATTRACHTIVENESS%20%282016%29.pdf

African leaders have recently designed a development system for all regions, known as
the New Partnership for African Development (NEPAD), which illustrates the need for
macroeconomic stability, good governance, peer review and political stability in all
African nations.

https://www.researchgate.net/publication/223326317_Foreign_direct_investment_in_Africa_Performa
nce_challenges_and_responsibilities

Regardless of many efforts made by different countries of Africa, the continent is still
persistent by economic instability and the slow pace of reforms.
As Africa continues to grow as an investment destination, greater importance will be set
on domestic and foreign regulations aimed at promoting higher levels of FDI while
protecting, national securities. For e.g. In Uganda, under the Petroleum Act 2013, if
goods and services are not available in Uganda and if they are supplied by a foreign
company, the supplier is required to enter into a joint venture with a Ugandan company
and the Ugandan company is required to hold at least 48% of the joint venture.
Similarly, law to promote foreign investment is also in effect across the continent,
whether by tax cuts or specific legislation to resolve investor concerns. A new scheme is
in place in Nigeria to promote investment in the infrastructure sector through new fund
frameworks and other initiatives to attract foreign investors, such as Export Free Zones.
Local content regulation, mainly covering the oil & gas industry, seeks to facilitate local
ownership, jobs and skills transfer in different regions of Africa.

https://www.kwm.com/en/uk/knowledge/insights/overview-of-foreign-direct-investment-in-africa-20160101

Thus, it is concluded that international regulations have helped some African countries to be
benefitted from FDI by involving foreign firms with local firms and encouraging local
entrepreneurs. Many attempts have been made in various African countries to attract FDI,
but some of the region is still less attractive to FDI because of some countries' no or less
efforts to motivate foreign countries. Therefore it is not enough just to improve the political
environment of some countries, but improvements need to be made in Africa as a whole in
order to stand out as an attractive continent for inward FDI.