Economy Value Rank Share in World Total
USA 251 1 17
China 87 3 6
France 78 4 5
Belgium 72 5 5
Germany 66 6 4
Canada 63 7 4
Hong Kong, China 48 8 3
Spain 45 9 3
Italy 42 10 3
Netherlands 39 11 3
Australia 38 12 3
Russia 31 13 2
Brazil 28 14 2
Singapore 27 15 2
Sweden 26 16 2
Mexico 23 17 2
Ireland 20 19 1
Turkey 20 20 1
The data provided above prove the views that much of the FDIs are based on north north flow and that only few countries from the South really participate FDI game. Also the data provide valuable information to Africa, that the continent has to do more if it wants to attract meaningful FDIs.
Available FDIs information indicates that much of the investments attracted in Africa are resource seeking investment, seeking minerals, oil and gas. It is unfortunate that such investments do not have the required backwards and forwards linkages to the rest of the economy. In order to get the benefits of FDIs countries should be able to attract FDIs in the manufacturing sectors, which is considered to have backwards and forwards linkages to the rest of the economy. African countries have not been able to attract FDIs in manufacturing sectors, this in one way or another calls for the review of the current FDIs attract policy in Africa to address at least two important issues:
(a) address measures necessary for attraction of FDIs in manufacturing sector or
(b) make resource seeking FDIs integrate with local economy, so reformulate the current FDIs policies to include measures that will make resources seeking FDIs in mineral and oil be responsive or rather be integrating with the local economy in terms of providing backwards and forwards linkages in the economy. This could be possible if the current FDIs policies are reformulated to address issues relating to mining sub-contractors and other supply chains issues to mining MNEs.
What then are the determinants for FDIs flow, which African government should take into account in order to increase their global share of FDIs?
The decision of MNEs to relocate depend on several factors, the key ones are listed below
1. Regulatory Framework: many FDIs prefer relocation into countries where regulatory framwork is a bit similar to their home country, that regulatory framework that are pro-investors in contents.
2. Investment Promotion: the existence of investment promotion agency that are pro-active in facilitating FDI and providing after establishment services. This is crucial because many FDIs do not know the investment environment where they put their money, so the availability of active agency is crucial in providing pre-establishment assistence and post-establishment services.
3. Economic factors: MNEs location decision finally depend on economic factors; these economic factors can be categorized as follows:
(a) Locational resources and assets - here consideration is given to quality of labour, nature of physical infrastructure; the availability of natural resources; the level of technological systems and the domestic enterprise base.
(b)Market variable - consideration is given to economic growth and per capital income, the size of the host country market for goods and services, access to regional and global markets, country-specific consumer preferences and the structure of the host country market.
(c) Efficiency considerations include the cost of resources and other inputs such as transport and communication costs, energy cost and availability and membership in a regional integration agreement.
If social and political factors affect the decision of MNEs and FDIs flow, they do so in the context of a host of several determinant mentioned above.
Next time I will discuss the reasons why Africa is not participating in the Global Value Chain of MNEs that has helped countries in East Asian to achieve economic growth, and I will also discuss the policy options available to Africa in order to participate in the Chain.
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