The Disappointing Performance of Foreign Direct Investment in Industrial Development in Sub-Saharan African Countries

The Sub-Saharan African region compared to other developing regions has been the most vulnerable as regards foreign capital inflow. The flow of FDI is expected to result into advanced managerial and  technological capacities and acceleration of  industrial development. The study examined how the flow of FDI to the sub-Saharan African region has impacted the industrial development of the region, using the proxy of industry value added growth. The study made use of pooled data from thirty three sub-Saharan African countries within the period 1993 and 2012.The method of analysis utilized for the study was the fixed effect least-square dummy variable model, employed to estimate the impact of foreign direct investment on industrial development for the selected host countries. The study finds that foreign direct investment is statistically significant in relation to industrial development for host Sub-Saharan African countries; but it is disappointing that the expected desired features of industrial development, like increased manufacturing outputs, reduction in high level of import and manufactured goods; etc, have not been realized. It is therefore recommended that the governments of host countries should put policies in place to encourage development of industries domestically, to enhance sustained industrial development, such that dependence on external financial assistance and borrowing could be reduced, resulting in sustained increases in non-oil export earnings, domestic income, savings, investment, technology, and hence improved living standard. Keywords: Foreign Direct Investment; Industrial Development; Sub-Saharan African Countries JEL Classifications: F21, O1

Fragility of FDI flows in sub-Saharan Africa region: does the paradox persist?

Abstract The circumstances of the SSA region regarding the inflow of foreign direct investment (FDI) present a puzzle. In spite of the high rate of return on investment, the inflow of foreign investments keeps eluding the region, and the COVID-19 pandemic even perplexes the flow fragility the more. What factors then determine FDI flows aside from return on investment? Could there be more persuasive relative cost complexes? The study aimed at testing the effects of determining factors that influence FDI flows and their impact on economic development, considering the COVID-19 period. The study used cross-country pooled data from 30 SSA countries collected between 2001 and 2020. The study utilized five panel estimation techniques, namely Pooled Regression, Fixed Effect (FE), Random Effect (RE), Panel Two-Stage Least Square and Differenced Generalized Moments of Method (DGMM). The study found that the inflow of FDI has significant positive impact on economic development in the sub-Saharan African region. It is also ascertained that the outflow of FDI, and political stability has an inverse relationship with economic development. The study recommends that governments of host economies should hence ensure an enabling framework for their economies, so as to improve infrastructure, political stability, and institutional quality, in order to sufficiently encourage the inflow of FDI into the SSA region and make the environment inviting, sustainable, and beneficial for foreign investors and host economies alike

Foreign direct investment, dual gap model and economic development in sub-Saharan Africa

Africa like other developing continents has the representation of limiting gaps of foreign exchange, investment and human capital skills. Sustainable development emphasizes that for the limits of both foreign exchange and savings to be reduced, there is need for Foreign Direct Investment (FDI) to flow inclusive of, foreign skills and technology diffusion for economic development. The objective of the research is to determine how the gaps of foreign exchange, investment and human capital skills has been reduced through the influx of foreign investment for the African economies. Pooled panel data between 2000 and 2018 was utilized for 39 African countries, and analysed with the fixed effect regression model. The results indicate that the influx of FDI has not brought about sufficient decline in the gaps for the selected African economies. The study recommends that government of developing countries need to select with care industries that foreign capital flows into in order to ensure tangible effect on investment domestically as well as deter crowding-out of capital. Furthermore, strategies on protection of domestic investors, enhanced export of production through industrial development as well as lesser consumption proportion, should be implemented, thereby, improving the balance of payment situation. These consequently would result into a gradual decline of the investment and the foreign exchange limits. Thus, resulting into a rise in domestic investment in addition to the much anticipated sustainable development goals of poverty reduction, total well-being and economic development in the continent