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Factors affecting direct foreign investment in Africa

14.11.2018
In recent times, like many developed nations, Africa is en route to spurring growth at all levels. But then how can these governments attain their objective? One possible way is through doing business with other nations. One good aspect of globalization and international collaboration is therefore the exposure of the potentials of partner nations to each other. By so doing, they open doors to prominent financiers for investments, coming from every angle. However, attracting foreign direct investment especially in developing nations remains an issue of utmost concern due to unfavourable factors that scare investors away.

Foreign Direct Investment or FDI is simply defined as the process whereby an individual owns and controls a business in another nation, without being physically present to control the business. African leaders have set developmental projects (agenda 2063 or the SDGs) in their pursuit to better improve their economies, countries like Rwanda, South Africa, Ghana, Tanzania among others have identified investment as a prerequisite to attaining these said goals. Making the continent a safe haven for prospective investor remains a major challenge to so many African nations.  During a recent November 2018 Africa Investment Forum in South Africa, host Leader Cyril Ramaphosa said the forum was a lead way  to redefine Africa, calling on the ruling Class and stakeholders to find a lasting solution to the obstacles hindering Foreign Direct Investment in  Africa.

FACTORS HINDERING FOREIGN DIRECT INVESTMENT (AFRICA)

Many factors account for the slow rate of Foreign Direct Investment FDI in developing nations. Some of the factors include;

  • Political instability: Reports have proven beyond reasonable doubts that a troubled nation or a country at war records very low in investment be it at local or international levels. This is very practical in the sense that businessmen or investors would not like to venture in a business or buy shares in countries whose economy is dangling due to tribal wars or political battles. For example, in spite of its Petroleum resources and other endowments, the present political condition of a country like Libya where oil terminals are destroyed at will, is already an impediment to investment.

 

  • Corruption: The central government of every nation directly influences the level of investment. A nation where the political or decision making class lacks transparency and accountability, where embezzlement is at its peak, where stakeholders use public funds for personal benefits, does not present itself high for financial transactions or investments. Thus, corruption within the ruling political class poses a great threat to foreign direct investment. Of recent, the alarming rates of corruption in Nigeria have greatly affected the business atmosphere. However, President Buhari of Nigeria has vowed not to relent his efforts while corrupt people reap the country of its business opportunities.  Corruption remains a major challenge to investment in Africa and needs to be completely wiped out.

 

  • Good Governance: The aspect of good governance is very imperative and stands like a catalyst to investment especially foreign direct investment. Nations with good indicators of Good governance like accountability, inclusiveness; transparency, the rule of law, among others attracts more investors unlike countries with shaky leadership. It should be noted that where there is good governance, there is bound to be visible economic growth, proper financial management (fund trust), which of course is a pull factor for investment. Countries in the ECOWAS Zone can boast of practical and good governance, though much still need to be done to spur investment. It has become very clear that the unbalanced distribution of FDI in most less developed nations accounts for the slow pace of foreign direct investment, a good factor for economic growth. Therefore, if Africa can reconcile to solve the problems impeding FDI, then the continent with the help of foreign trade partners will obviously attain sustainable economic growth and transformation.

AFRIC Editorial Article.

 

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