Two framework papers and eight country case studies constitute the heart of the Special Workshop, which is co-sponsored by AERC and the International Monetary Fund. Interim reports of the studies were discussed at a research workshop, held in Nairobi in December 2004, that identified areas of further research on the links among FDI, growth and poverty reduction.

The New Partnership for Africa’s Development (NEPAD) perceives FDI as a key resource for the translation of NEPAD’s vision for growth and development into reality. Africa, like many other developing regions of the world, needs a substantial inflow of external resources in order to fill savings and foreign exchange gaps and leapfrog itself into sustainable growth in order to eliminate its current level of poverty.

The papers prepared for the Special Workshop centre among others on:

The aim of the framework papers is to provide a broad paintbrush of the issues, highlighting what we do know from the literature on the determinants of foreign direct investment in general and to both Africa and Asia in particular. The country studies identify areas of commonality in the various factors attracting FDI and also areas that are peculiar to some countries. They also analyse whether replication of positive macroeconomic policy is possible and what lessons can be learnt from one another. The framework papers and the Côte d’Ivoire and Kenya case studies were financed by the IMF and the other case studies by AERC.

Ibi Ajayi of the University of Ibadan and Yuko Kinoshita of the IMF Institute prepared the two framework papers. Ajayis’s paper concentrated on the "Determinants of Foreign Direct Investment in Africa: A Survey of the Evidence", while Yuko Kinoshita’s paper asked "Why Does FDI Go Where It Goes? New Evidence from the Transition Economies".

After a thorough examination of the trends of FDI inflows in Africa, Ajayi lists the various factors influencing the flow of foreign direct investment in Africa and provides evidence on the relative importance of these factors. Yuko Kinoshita

The country case studies consisted of papers from Botswana, Cameroon, Côte d’Ivoire, Ghana, Kenya, Nigeria and South Africa. The paper for Côte d’Ivoire was not available for presentation at the research workshop.

Significant amounts of FDI have been attracted to Botswana, according to the paper by Happy K. Siphambe, mainly in diamond mining and banking services. While incentive schemes have been important for these areas, other factors have also bolstered FDI. Among these are Botswana’s stable political environment, stable macroeconomic policy and competitive exchange rates relative to the South African rand. Low crime levels and good human capital development also make Botswana an attractive investment destination.

Sunday Khan and Lydie Bamou examine the various factors affecting FDI into Cameroon. A number of policy issues are highlighted. These include building an investment-friendly environment by improving the provision of infrastructure, opening up the country through trade, investing in education and promoting economic growth. It is also important for Cameroon to reduce corruption and to provide incentives such as tax holidays and custom exoneration for more FDI to come into the country.

Yaw Asante traces the history of FDI in Ghana back to the 1970s, when the annual inflow was as high as $68 million. Towards the end of the decade, with the ascendancy of the Rawlings government, Ghana experienced an outflow of investment funds. The paper analyses the four phases of FDI inflows since the advent of the Economic Recovery Programme in 1983. Historically, the major types of FDI attracted into Ghana have included investments to exploit the country’s mineral resources, mainly gold. The active policies undertaken to attract FDI include fiscal incentives such as tax holidays, accelerated depreciation allowances and arrangements for profit repatriation. Generous incentives also exist for free zone developers. From available evidence on sectoral allocation, the services sector now tops the FDI list in Ghana, followed by manufacturing and tourism.

In the Kenya case study Francis Mwega and Rose Ngugi analyse the various factors that constrain improved net inflows into Kenya and examine whether the country responds differently to the various determinants of FDI than other countries. Among the issues analysed are the magnitudes of net FDI inflows, their composition and sectoral destination, as well as the economic, political and other factors that might influence them. The paper asserts that there has been high volatility in FDI flows to Kenya and concludes that FDI has not played an important role in the Kenyan economy despite the reforms that have been undertaken and the many incentives provided to foreign investors. Among other things, the paper cites the deteriorating business environment in the 1980s

and 1990s, which formed a major deterrent to the flows of FDI.

Nigeria is one of the major destinations of FDI in Africa. In their analysis, E. Olawale Ogunkola and Afeikhena Jerome note that while the FDI regime in Nigeria is improving, serious deficiencies remain. Political and institutional uncertainty persists in the country, and the weakening of the rules of law has discouraged FDI and trade flows outside the oil sector. Legal and judicial systems are inadequate to support the needs of new investors into other sectors of the economy. A more conducive policy environment needs be put in place for Nigeria to attract further investments.

The South Africa paper by Oludele Akinboade, Franz K. Siebrits and Elizabeth W. Niedermeier highlights the various factors influencing the flow of FDI, and the policy measures that have been put in place to attract FDI in recent times. It cautions on the importance of addressing social issues such as crime and HIV/AIDS, as these may affect the flow of FDI.

No single factor affected the flow of FDI into Uganda, according to Marios Obwona and Kenneth Egesa, but various policies have had an impact at different times. Privatization and the return of previously confiscated properties of expelled Asians, for example, led to considerable FDI that cuts across the various sectors. Meanwhile, a constellation of policies has been put in place to achieve macroeconomic stability and this together with peace in much of the country has brought large inflows of FDI. Among other significant factors influencing FDI into Uganda are the successful implementation of privatization and efforts at regional integration – which is important in attracting market-seeking investment. Others are aggressive investment promotion, reform of incentive schemes and administrative simplicity. The various positive steps made to attract FDI notwithstanding, weaknesses remain especially in the areas of infrastructure, level of corruption and improvement of institutional support. Consequently, there is need to continue to enhance the business environment and improve the risk coverage schemes on both bilateral and multilateral basis.

Following the research workshop, authors were asked to review their papers along the guidelines provided by the coordinator and the suggestions by workshop discussants. The seven papers mentioned above have been revised and are being processed for publication and dissemination. AERC is working with the Bank of Zambia to schedule a dissemination conference in July.

Ibi Ajai, coordinator of the Special Workshop on FDI, is Professor of Economics at the University of Ibadan, Nigeria.