Challenges in the Era of Globalization - iaabd

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Proceedings of the 12th Annual Conference © 2011 IAABD Within the continent, the distribution of FDI flows is also uneven. For example, in the early 2000s, the major recipients of flows in the region were South Africa, Morocco, Nigeria, Angola, and Algeria. They invariably accounted for half of the total inflows to the region. The primary sector remains the most important destination for FDI flows into the region, accounting for more than 50% of inflows from major investors to Africa over the late 1990s and early 2000 period. Within the primary sector, oil and gas are the most important industries. Since 2000, there has been an increase in inflows into the tertiary (service) sector and sometimes attracted more inflows than the primary sector. These patterns continue today, with the top FDI destinations for 2008 were Nigeria (USD 20.3 billion), Angola ($15.5 billion), Egypt ($9.5 billion) and South Africa ($9 billion), this is followed by Libya, Tunisia, Algeria, Democratic Republic of Congo (DRC) and Sudan. As ever, the most attractive countries for investment tend to hold significant natural resource endowments, active privatization programmes, liberalized FDI policies and vigorous investment promotion activities.(African Economic Outlook 2010; UNCTAD 2010) This growth in interest in FDI in many African countries can compare only with the high expectations of what FDI can achieve in terms of its contribution to economic and social development. The effect of FDI and its quality depend significantly on domestic policies, especially measures to develop human capital, and social, physical and institutional infrastructure. The recent surge of FDI inflows to the Africa region, particularly over the period 2001-2007, followed from, among other things, a more positive climate for investments. These changes got support from reforms of policy frameworks for FDI, including changes in regulations related to natural resource exploitation. A number of African countries also have received commitments for increased aid from the international community. International donors have also offered support to regional development initiatives that boost infrastructure development and provide more market access, all of which contribute to FD inflows. (UNCTAD 2008) The objective of this paper is threefold; firstly, it identifies the role of human capital, among other factors, in determining the size of FDI. Secondly, which measure of human capital is best suited to the structure and characteristics of SSA, the target area of this research? Thirdly, the study tries to identify whether the location requirements for FDI inflows have changed over time, and in which direction. The rest of this paper is presented as follows: Section two reviews the role and determinants of FDI in SSA; section three presents the model to be analysed, describes the data, data sources and the variables to be analysed; section four analyses the empirical results; and the conclusions are presented in section five. FDI determinants in Sub-Saharan Africa There is a vast literature on the factors that determine the inflow of FDI into countries, depending on their levels of economic, social and political development. The direction of influence and levels of significance of these factors might prove decisive for countries with slow or stagnant growth in their economic development, like those in Sub-Saharan Africa. These factors and their influence tend to change over time and with development (see for example Dunning 1998). Also of importance is the mode of entry of multinational enterprises (MNEs). This may determine which factors play significant roles in the size FDI inflows, particularly as the pattern and requirements of FDI/MNEs change over time. In terms of the composition of FDI flows, there is a growing body of evidence, which indicate that, in recent years, the composition of flows is shifting away from countries with large oil and mineral reserves towards the industrial and service sectors, such as textiles, telecommunications and banking. This in itself means that the factors that determine FDI in SSA are also changing, away from market and resource seeking to a more efficiency seeking type. FDI has grown into a major source of capital in the region thanks to SSA governments’ significant policy efforts. Attracting FDI has required governments’ commitment to improving institutional frameworks, 276
Challenges in the Era of Globalization Edited by Emmanuel Obuah which can serve to increase competition and provide technological spillovers. As such, FDI can provide successful incentive schemes for improved business environments in African countries. Nevertheless, while FDI inflows are important as a stable and long-term source of capital to promote industry and commerce, the majority of FDI to Africa remains targeted to the primary sector in a relatively limited group of countries. Thus, the broader developmental impact of FDI backed projects is often limited. In various publications, UNCTAD have shown that market size and access to natural resources have been crucial determinants of FDI flows to SSA. This is far from surprising, given that SSA countries that have benefited from the increased inflow of FDI to the sub-continent have been those with large domestic markets and those that possess large amounts of natural and mineral resources, e.g. Nigeria and South Africa (see for example UNCTAD 2002; Cleeve 2008). The relationship between market size, measured by GDP, and FDI inflows show that in 1996-97, South Africa, followed by Nigeria and Cote d’Ivoire have the largest GDP and hence the largest inflows of FDI. On the other extreme, Sierra Leone, Niger and Burundi, with the lowest GDP, attract the lowest FDI flows (World Bank 1999). Furthermore, for a sample of 29 SSA countries, the correlation coefficient between FDI inflows and market size is almost perfect at 0.99. Market size and natural resource endowments continue to be significant for the large and well-endowed economies, but other factors are becoming more important within the sub-continent, so much as to reduce the correlation between FDI and those traditional factors. Apart from natural resources and market size, Morisset (2001), using FDI climate as the dependent variable, showed empirically that GDP growth rate and trade openness are significant and positively related to the investment climate in SSA. Trade openness, being significant, confirms and supports the policy of trade liberalisation, now being pursued by the majority of SSA countries. SSA countries that have been able to establish a stable macroeconomic and political environment for a period of time, have improved and developed their ICT position, have successfully implemented trade liberalisation and privatisation programmes and have adopted international treaties relating to FDI, tend to have attracted FDI in areas other than natural resources and market access. Two SSA countries that have improved their investment environment are Mali and Mozambique. These countries have attracted more FDI than Cameroon and Kenya, which have larger local markets and abundant and a wide range of natural resources (UNCTAD 2002). In order to attract an increased flow of FDI into their economies, many SSA countries become engaged in what Wheeler and Mody (1992) refer to as “location tournaments”, where these countries compete against each other to attract foreign investment. Oman (2000) describes this tournament of outbidding each other with more incentives as “the prisoner’s dilemma nature of the competition creates a permanent danger of such war.” (p. ii). Ross and Chan (2002) believe that the outcome of these tournaments is a “race to the bottom”, where SSA countries offer more incentives and concessions than their neighbours do to win more FDI. In these circumstances, the cost of incentives often outweighs their benefit. Perceptions on the offering of incentives to attract FDI vary widely among economists. Supporters argue that they increase investment, create jobs and other socio-economic benefits. Opponents, on the other hand, believe that incentives are distortional and may not be the first-best mechanism for attracting FDI. They also believe that the costs of incentives outweigh the benefits. As a result, they suggest that improvements in local infrastructure, political stability and stability of the macro-economy are better instruments for stimulating FDI inflows (Cleeve 2008). Among these stimulants for FDI inflows, this paper focuses on the role of human capital, a proxy for the efficiency-seeking type of FDI, in this context. Economic theory presumes that human capital (levels of education) is one of the key determinants of FDI inflows. Some of the authors who have identified this 277
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Challenges in the Era of Globalizat
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Table of Contents Challenges in the
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Lennart Bangens, Goteborg, Sweden C
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Local Steering Committee Jacob Musi
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Abstract Challenges in the Era of G
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Abstract Determinants of Bank Lendi
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Empirical Results Challenges in the
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Table 3 Determinants of Competitive
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Abstract: Study on Africa Governmen
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Abstract Challenges of Oil Revenue
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Figure 1: Lagos off shore survey po
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Conclusion Challenges in the Era of
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37. Provision of sound education fo
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Theoretical Framework Challenges in
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Single 18.1 Masters and above 35.3
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Source: Field survey, 2010 Table 3:
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Track 9: Global Studies and Politic
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Conceptual Definitions Challenges i
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Conclusions and Implications Challe
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Abstract Exploring Organisational R
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district hospitals: Evidence from N
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Defining the Organisational Culture
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Table 1: A Summary of Operating Ban
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Discussion and Conclusion Challenge
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Abstract What does Globalization me
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Convenient location of banks Challe
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Banks in Ghana Challenges in the Er
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References: Challenges in the Era o
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The study seeks to: • examine typ
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Relationship Commitment Total 1264.
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Conclusion Dissatisfied 6 3.4 3.6 7
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Discussion Challenges in the Era of
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GOVERNMENT MoFED SECTORS Structure
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Football Spectatorship Challenges i
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