An Analysis of Trends in Foreign Direct Investment Inflows to Africa

Abstract

This study examines the trends in Foreign Direct Investment (FDI) inflows to Africa, with the ultimate aim of proposing implications for policy action. The main source of data for this study is the UNCTAD (2018) database which at the time of the study contained FDI data from 1990 to 2016. The findings show that, although Africa is in dire need for FDI due to scarcity of capital, it is not able to attract as much FDI compared to advanced countries and other developing regions. The little FDI that comes to Africa is concentrated sub-regionally and country-wise. Region-wise, most FDI is concentrated on Southern Africa followed by Northern Africa with East Africa and Central Africa at the bottom. Country-wise, the two main recipients of FDI in each sub-region are Angola and South Africa (Southern Africa); Egypt and Morocco (North Africa); Nigeria and Ghana (West Africa); Tanzania and Ethiopia (East Africa) and Congo and the Democratic Republic of Congo (Central Africa). The FDI that comes into the continent is further concentrated in the primary (extractive) sector. As a result the benefits to the region have not been as significant as in East Asia where FDI was mainly into the secondary (manufacturing) sector. It is concluded that, FDI is a growth point that countries can count on as a source of resources for development, however, Africa need to change the approach adopted in promoting FDI, which focuses on providing incentives to creating a domestic environment conducive to entrepreneurship and business in general.