africa

Yale Center for the Study of Globalization
the determinants of FDI in non-extractive industries, and Section 1.6 discusses
policy implications.
23.2 Importance of FDI to Sub-Saharan Africa
We [the United Nations General Assembly] resolve to halve, by the
year 2015, the proportion of the world’s people whose income is less
than one dollar a day. We also resolve to take special measures
to address the challenges of poverty eradication and sustainable
development in Africa, including debt cancellation, improved market
access, enhanced Official Development Assistance and increased
flows of Foreign Direct Investment (,..).
This quotation from the United Nations Millennium Declaration (September 8, 2000)
suggests that an increase in FDI to Africa can help the continent achieve the Millennium
Development Goal (MDG) of halving poverty rates by 2015. The importance
of FDI in eradicating poverty is echoed in the New Partnership for Africa’s
Development (NEPAD), whose Framework Document stipulates that “to achieve
the 7 percent annual growth rate needed to meet the MDG […], Africa needs to fill
an annual resource gap of 12 percent of its GDP, or US$64 billion” (NEPAD, 2010:
37). Since income levels and domestic savings in the region are low, this resource
gap needs to be filled by foreign capital, mainly foreign aid and FDI. 9
Foreign aid has declined since the global financial crisis in 2007. From 2001 to
2006, aid increased by about 81 percent in real terms—from US$16.3 billion in
2001 to about US$38.9 billion. Subsequently, however, aid declined in 2007 to about
US$32.6 billion (i.e., a decrease of 16 percent from the 2006 level), and rose in
2008 to US$33.5 billion (i.e. about 14 percent less than the 2006 level).
With regard to future aid flows, the analysis of Dang and others (2009) suggests that
the 2007 financial crisis could lead to a significant reduction in aid flows. Specifically
the authors find that when a donor country experiences a systemic banking crisis,
aid from the donor decreases until it bottoms out in about ten or eleven years, with
an estimated decline of about 17 percent in the first five years and a decline of
about 24 percent after eleven years. Even if future aid flows do not follow historical
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