Foreign Direct Investment in Africa and Its Determinants

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U.S. Foreign Direct Investment in Africa and its Determinants Emmanuel Nnadozie
November 2nd 2004

Outline
nMotivation
nCentral Questions
nTheoretical Framework
nData
nResults
nConclusions

Motivation
nForeign direct investment (FDI) represents an important source of finance for developing countries.
nAfrica’s share of global FDI and US total private investment to developing countries remains low and has not grown rapidly despite economic and political reforms. Background
nFDI in Africa is relatively low, volatile, and highly concentrated in a few countries.

nFor example, US FDI in Sub-Saharan Africa – mainly in the manufacturing sector in South Africa, and the petroleum industry in Nigeria and Angola.

nForeign direct investment (FDI) in Sub-Saharan Africa yields relatively high returns. In 2002: "The rate of return on FDI was highest in Sub-Saharan Africa, compared with other regions in the world, perhaps because, given perceived higher risks in the region, investors chose only high-return projects.” (World Bank, 2003).

nIn 2002, foreign direct investment remained the most important source of external financing for developing countries, with net FDI reaching $143bn in 2002. nWorkers' remittances –currently the second largest source of inflows $80bn last year, up from $60bn in 1998, while net lending by official creditors to developing nations was $16bn, with another $33bn given in grants. Country Examples

nA few examples from Sub-Saharan Africa: DATA from IMF’s, International Financial Statistics yearbook various years nSUDAN Workers' remittances averaged 417 million dollars in 1995-98,representing over 70% of export earnings and three and a half times the amount of foreign direct investment (FDI). nNIGERIA Workers' remittances received on average in 1995-98 were over 1.3 billion dollars, 10% of the value of exports and roughly equal to the total of FDI. nMALI At 103 million dollars, workers'...
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