Put on the light! Foreign direct investment, governance and access to electricity

Abstract

Despite efforts and commitments to achieve universal coverage of electricity, overall access in Africa is below expectation, making the attainment of the United Nations' Sustainable Energy for All Initiative almost a mirage for this region. The inability to mobilize adequate domestic financial resources and a seeming lack of political will (reflected in governance) have been highlighted as two of the major bottlenecks in the development of electricity infrastructure in African regio. Regarding inadequate financial resources, we argue that inflows of foreign direct investment (FDI) and the influx of multinational enterprises can help a great deal. To this end, we investigate the impact of FDI on access to electricity and further examine whether this impact is contingent on the governance architecture. Using a sample of 36 African countries, and the instrumental variable (IV) approach to the generalized method of moments (GMM), our results suggest that, for the most part, the direct impacts of FDI and governance on access to electricity are positive. The role of governance in the FDI impact on electricity was established.