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

8. 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