Foreign Direct Investment In Sub-Saharan Africa Research Articles

FDI, institutional quality and gender employment in Sub-Saharan Africa

With the widening saving-investment gap and the limited domestic financial resources to drive development imperatives in Sub-Saharan Africa (SSA), foreign direct investment (FDI) is considered a viable and sustainably promising option for boosting employment generation and closing gender gaps in employment. This paper provides critical insights into the gender and age-based employment effect of FDI in SSA and the role of institutional quality in shaping the relationship. The two-step generalized method of moments modelling framework was adopted to analyse relevant data of 29 SSA countries over the 2000-2021 period. The results revealed that FDI has a significant employment-enhancing effect irrespective of gender and age considerations. We also find that institutional quality amplifies this effect. Efforts should, therefore, be concentrated on improving institutional quality, the success of which will appeal to foreign investors and attract more foreign investments.

THE IMPACT OF FOREIGN DIRECT INVESTMENT ON FINANCIAL DEEPENING IN NIGERIA

The quest for economic growth and development has been the primary focus of economies worldwide, leading to the formulation of various policies and strategies. Foreign Direct Investment (FDI) is one such strategy, serving as a means to earn foreign reserves and finance capital formation, technology transfer, and trade. Nigeria has consistently been a top beneficiary of significant FDI in sub-Saharan Africa, with FDI inflows fluctuating over time. Despite the benefits of FDI, its impact on financial deepening and economic growth varies across countries and depends on factors such as absorptive capacity and the type of FDI. This study aims to examine the impact of FDI on financial deepening in Nigeria from 1980 to 2022. The research questions address the trend of FDI and financial deepening in Nigeria and the relationship between the two variables. The study will use theoretical frameworks, including the MacDougall-Kemp hypothesis and Dunning's eclectic paradigm, to explore the role of FDI in promoting financial deepening. The findings of this research could have significant implications for policymakers, the Nigerian government, investors, and businesses. Understanding the impact of FDI on financial deepening will help inform appropriate policy measures and strategies to enhance Nigeria's financial sector and spur economic growth. Additionally, the study contributes to the existing literature on FDI and financial deepening, providing valuable insights for future research in this area.

Dynamic association between socio-economic, environmental and logistic operations: Evidence from SSA BRI host countries

This study examines the connection among green logistic operations, countries-level economic, environmental, and social indicators in Sub-Saharan Africa (SSA) Belt and Road Countries. Using the system generalized method of moments (S-GMM) estimator, this study analyses annual data from 2008 to 2018 and offers three key findings. First, economic indicators China’s foreign direct investment (FDI), trade openness and economic output) are positively associated with green logistic operations. Second, logistics are positively correlated with renewable energy while inversely correlated with carbon emissions. Third, social indicators are also directly associated with green logistic operations measured through health expenditure and institutional quality. Lastly, information communication technology also spurs green logistic operations. Manifestly, Chinese outbound FDI in SSA substantially improved the quality of their logistics in terms of infrastructure, cost, time, customs services, tracking, and the consistency of international shipments. These findings show that green logistics provide adequate infrastructure, and supply chain partners share information more frequently, increasing trade volume, growth potential, and environmental sustainability. Similar results are also endorsed using a feasible generalized least square (FGLS) estimator and suggest that SSA should take effective measures to improve their logistics operation.

Macroeconomic and institutional conditions: the drivers behind divestment of FDI in Sub-Saharan Africa

PurposeThe purpose of this paper is to determine how macroeconomic performance work with institutional quality influences divestment of foreign direct investment (FDI) in Sub-Saharan Africa, in the short and long run.Design/methodology/approachThis paper investigates divestment of FDI in Sub-Saharan Africa, within the period 1980–2020. The investigation is undertaken by first comparing the trend with what is obtained in other economic regions of the world. The factors behind the divestment are subsequently investigated, using the vector error-correction model.FindingsIn the comparative analysis, Sub-Saharan Africa and other regions are observed to have witnessed sustained divestment in recent years. The estimation results of the model reveal that macroeconomic performance and institutional quality are the predominant drivers behind the divestment.Research limitations/implicationsThe findings, however, do not conform to the neoclassical theory that lays emphasis on investment return as the fundamental factor influencing investment. Long-run structural stability is also established; hence, the results may be considered suitable for predicting future divestment in the region.Practical implicationsIn view of the empirical findings, macroeconomic performance and institutional quality need to be improved to ameliorate FDI divestment in Sub-Saharan Africa.Originality/valueThere is paucity of research works on divestment of FDI in Sub-Saharan Africa. Again, there is paucity of works on how macroeconomic and institutional conditions work together to influence divestment. This study provides some evidence to bridge the perceived gaps.

Human capital, governance, foreign direct investment and their relationship with TFP growth: Evidence from Sub-Saharan Africa

Developing countries in Sub-Saharan Africa (SSA) are increasingly integrating into the global economy. As such, this region has experienced a surge in inward foreign direct investment (FDI). Increasing FDI in African countries should lead to productivity growth, resulting from the transfer of capital, technology and skills. However, this effect is contingent on the absorptive capacities in the host countries, such as governance and human capital. This research brings forth empirical evidence on the impact of FDI on total factor productivity (TFP) growth, while accounting for the level of human capital and governance in SSA countries. This analysis was conducted using cross country data for 34 countries in SSA for the period 1996–2019 and estimated using the system generalised methods of moments (GMM) technique. The results indicate a negative linear effect of FDI on TFP growth, albeit statistically insignificant. The study also finds that there is a positive non-linear effect, dependent on the country’s local conditions of governance and human capital. Hence, greater productivity returns from FDI in SSA can be realised through an increase in the level of human capital and better governance.

Impact of Foreign Direct Investment on Economic Growth in Nigeria

In most developing countries, Foreign Direct Investment (FDI) serves as a means of earning foreign reserves via investments, businesses and foreign aids from advanced countries. FDI is considered a valuable source of finance and capital formation, Technology-Transfer and know-how, as well as a viable medium for trade among countries. The Spillover effect also allows for the transfer of innovations and invention to the receiving countries, one of which Nigeria belongs. According to the requirement for accelerated growth in association with the Sustainable Development Goals is not completely clear, however, for economies to experience sustainable and inclusive development, cross-border trade is paramount. Presently, Nigeria is the first host economy of FDI in Sub-Saharan Africa, and the third in the continent. Recently, Nigeria has witnessed several trade policies which aim at diversifying the economy away from oil revenue. These policies are focused on improving the industrial sector, and of course, results in austerity. In 2018, the total FDI inflow to the country was around USD 1.9 billion, while in 2017, FDI inflow was around USD 3.5 billion, showing a decrease due to the consequence of the austerity measures imposed in 2018. At the third quarter of 2019, the FDI was only 3.37% (USD 200.08 million) of the total capital inflow for the period. Traditionally, FDI is designed to improve the recipient economies thereby enhancing economic growth and development, it is in this view that many developing countries attract foreign investors with the hope of strengthening their economy by increasing the foreign investment portfolio. However, most empirical analysis of the impact of FDI on economic growth advises otherwise, hence, a controversy. According to the existing literature, some empirical results found a negative relationship between FDI and economic growth, while others opined that as FDI increases, it results in a boost of output productivity, hence a positive relationship between the variables. Therefore, this study contributes to the existing literature by investigating the effects of FDI both on the owner, and the host country, using Nigeria as a case study.

ICT Diffusion, Foreign Direct Investment and Inclusive Growth in Sub-Saharan Africa

This study examines the joint effects of ICT diffusion (composed of access, usage and skills), and foreign direct investment (FDI) on inclusive growth in sub-Saharan Africa (SSA). The study draws on data from the World Bank’s World Development Indicators, and the Global Consumption and Income Project for the period 1980–2019 for the analysis. The study provides evidence robust to several specifications from ordinary least squares and dynamic system GMM estimation techniques to show that: (1) FDI and ICT diffusion and corresponding components (ICT access, usage, skills) induce inclusive growth in SSA; (2) compared to its direct effect, FDI is remarkable in fostering shared growth in SSA in the presence of greater ICT diffusion, and (3) compared to ICT access and usage, ICT skills are more effective in driving inclusive growth in SSA. Overall FDI modulates ICT dynamics to engender positive synergy effects on inclusive growth. Policy recommendations are provided in line with the implementation of the African Continental Free Trade Area (AfCFTA) Agreement and the projected rise in FDI in SSA from 2022.

How Deep is Your Love? - Regional Integration and FDI in Sub-Saharan Africa

This paper uses a gravity model to assess the impact of deeper integration through Regional Economic Communities (RECs) on foreign direct investment (FDI) in Sub-Saharan Africa (SSA). The analysis includes panel data on 25 host and 35 source countries in SSA over the period 2001-2012. Employing various model specifications, I find that integration efforts of the East African Community (EAC) and Southern African Development Community (SADC) are associated with a significant increase in FDI between the respective REC’s member states. In addition, EAC and SADC members that are open to international trade and those that are less similar to other members especially benefit from deeper integration in terms of FDI.

THE CYCLICALITY OF REMITTANCES IN SUB-SAHARAN AFRICA

1. INTRODUCTIONThe flow of remittances to Africa in general, and sub-Saharan Africa in particular has been small relative to global remittances flows. Nevertheless, there has been a steady and significant increase in the flow of remittances into the sub-region in recent years. Remittances increased by over 100% between 2000 and 2005, from US$4.5 billion to about US$9 billion, and were estimated to be about US$21 billion in 2009.1 Figure 1 shows the consistent increase in remittances to sub-Saharan Africa, both in relation to GDP as well as in absolute currency units. Figure 2 compares remittances-GDP ratio for sub-Saharan Africa to that for all developing countries, and shows that it has been greater for the sub-region since 2007.Sub-Saharan Africa received on average about 6% of total remittance flows to developing countries between 2005 and 2009, attaining a high of about 7% in 2009.2 This is a relatively small share in absolute terms, but relative to GDP, many countries are attracting about the same level of remittances, and in several cases, even higher than some major recipient countries in Asia and Latin America. Remittance flows to sub-Saharan Africa are unevenly distributed. For instance, the major recipients in 2009 included Nigeria with US$9.5 billion, Sudan with US$3 billion, Kenya with US$1.7 billion and Senegal with US$1.3 billion. When expressed relative to GDP, for the same year, the main recipients included Lesotho at 28%, Togo at 12%, Senegal and Cape Verde at 10% and Liberia at 6%. In 2011, Nigeria received $21 billion, the highest in absolute terms, whereas Lesotho remained at the top with 27% when expressed as ratio of GDP.After remaining generally unaltered in 2012, remittances to sub-Saharan Africa grew by 3.5 percent in 2013 to reach $32 billion, and flows are forecast to rise to $41 billion in 2016 according to a World Bank press release issued in 2014. The available data shows Nigeria remains the largest recipient by far, with migrants sending about $21 billion in 2013. Remittances also increased by 10 percent to Kenya and 15 percent to Uganda. In contrast, Senegal received a modest increase in 2013, after a slowdown in 2012.Remittances have been frequently compared to other sources of foreign exchange in developing countries, particularly Official Development Assistance (ODA) and Foreign Direct Investment (FDI), and have exceeded both FDI and ODA in many of these countries. In 2007, remittances were estimated to be twice as large as ODA, and about two-thirds of FDI inflows to developing countries. On the contrary, they have lagged behind ODA and FDI in sub-Saharan Africa (Figures 3 and 4). Sub-Saharan Africa remains one of the few regions in the world where official development assistance is larger than remittances, and both of these capital inflows are much more stable than foreign direct investment and private financing inflows. This observation notwithstanding, remittances still remain a potential source of external finance to the sub region as many countries in the region have large migrant population overseas with substantial savings that could be mobilized for development financing.There are a few theories that have been advanced to explain why remittances are sent. One is that remittances may be motivated by altruism or family arrangement. This theory holds that migrant workers send remittances to family members to supplement incomes when they are low in general, and particularly during economic downturns in the home economy, with the view that the welfare of distant relatives is tied to the migrant's own welfare function (Rapoport and Docquier, 2006; Niimi et al., 2008). Under this theory, remittances are expected to be counter-cyclical. Another one posits that remittances are mostly driven by selfish reasons, including the exploitation of investment opportunities, which provides migrants a means to allocate their savings optimally between origin and destination countries (Lucas and Stark, 1985). …

An Analysis of Chinese Foreign Direct Investment (FDI) in Sub-Saharan Africa: A Particular Focus on Ethiopia

This study offers an assessment of' Chinese FDI in Sub-Saharan Africa with a particular focus on Ethiopia. The research method employed in this study has both qualitative and quantitative features. The findings of the study are presumed to be of paramount importance by inducting policy direction for policy makers in sub-Saharan Africa regarding Chinese investment in the region. The findings demonstrated some 90% of China (Sino) - sub-Saharan African trade is based around natural resources: oil, ores and minerals (Mary- Françoise Renard, 2011). Of course, China has certainly been contributing to sub-Saharan Africa’s economic growth, both in terms of trade and building of infrastructure. However, the Chinese exports of natural resources by themselves do not help sub-Saharan Africa because oil and mining are not labor intensive industries which even if natural resources may create economic growth in figures, does not necessarily translate into widespread job creations. In addition, large oil and mineral reserves can also distort the local currency, pushing up prices of other exports, such as agricultural and manufacturing products making them much harder to sell overseas. What makes the Chinese FDI unique in Ethiopia is almost 60% of these investments are concentrated in the manufacturing sector and infrastructural development, which is different from what happened in other African countries where the Chinese FDI is pretty much resource seeking (Alemayehu Geda and Atnafu G. Meskel, 2009). There are concerns related to China FDI in Ethiopia such as the dumping of low quality Chinese goods in Ethiopian markets, Chinese manufacture poor employees’ safety practices, the Chinese imports negative impact on domestic industries and Chinese investors’ involvements in corruption and other trade frauds. In conclusion, to realize the major benefits by reducing risks associated with this Chinese FDI in sub-Saharan Africa, countries must have appropriate policies and strategies including strong institutions arrangement.Keywords: FDI, Sub-Saharan Africa, Chinese FDI in Sub-Saharan Africa, China, Ethiopia

The Heterogeneity of FDI in Sub-Saharan Africa How Do the Horizontal Productivity Effects of Emerging Investors Differ from Those of Traditional Players?

This paper analyzes the horizontal productivity effects of foreign direct investment (FDI) from industrialized and developing countries in 10 sub‐Saharan African countries. We es‐ tablish a unique data set by combining data from the World Bank Enterprise Surveys that allow us to distinguish between foreign investors from sub‐Saharan Africa, Asia, Europe, the Middle East, and North Africa. We find strong evidence of horizontal productivity spillovers to domestic firms derived from foreign‐firm presence. However, these effects are clearly dependent on domestic firms’ absorptive capacity. The largest productivity ef‐ fects seem to be driven by investors from sub‐Saharan Africa. Our analysis also shows that productivity effects differ according to the income level of host countries. Overall, the strongest productivity effects seem to materialize in lower‐middle‐income countries. These key findings emphasize the increasing importance of emerging investors, beyond the tra‐ ditional players from industrialized countries, in sub‐Saharan Africa.

FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)

This paper examines the characteristics of Location Specific Factors (LSFs) in Sub-Saharan Africa (SSA) regarding inward Foreign Direct Investment (FDI) by Multinational Enterprises (MNEs). Exploratory Factor Analysis (EFA) of 758 MNEs in 2003, 1216 in 2005 and 2402 in 2010 is used to compare the variability in LSFs in ten, 15 and 19 SSA countries respectively. We find firstly the most powerful factors, influencing the political-economy and trade dynamics of hosts to FDI, stable over time. Secondly, by 2010, production inputs become the most important factor for FDI followed by political-economic stability. This result reflects findings in International Business (IB) literature. Policy implications point to unwavering need by SSA to reduce transaction costs for FDI; increase the predictability of the policy environment; and increase the productivity-adjusted cost efficiency of inputs.