Foreign direct investment to Africa: trends, dynamics and challenges

Abstract

The FDI debate is often characterised by generalities about the importance of these flows within the global context. This article aims to unpack the African-specific FDI issues in order to get a clearer and more substantiated understanding of the current trends, dynamics and challenges, with emphasis on the period since 2000. The research concludes that nominal flows to the continent are on the increase, with exponential increases over the past decade. The descriptive analysis indicates that flows to the continent are unevenly spread and are concentrated in the largest economies and/or in petroleum-/oil-exporting countries. The impact of FDI on growth and investment in particularly smaller economies indicates that FDI inflows are making a substantial contribution to these economies and illustrates the importance of this source of investment. The econometric analysis reveals that oil exporters and the size of the economy are powerful explanatory variables in explaining FDI flows to Africa, with trade openness a positive, but less powerful variable.