How to Attract Foreign Investment

By Issa, Omari | African Business, March 2009 | Go to article overview

How to Attract Foreign Investment


Issa, Omari, African Business


Many African countries are expending large amounts of money, effort and time in often-futile bids to attract foreign direct investment, while paying little attention to those factors that not only create healthy economies at home but automatically draw in foreign investors. Omari Issa (left), the CEO of the investment Climate Facility for Africa, explains how to create conditions in which investments will thrive.

Many commentators on Africa's economic prospects have made much of the importance of Foreign Direct Investment (FDI) for the continent's future growth and prosperity. J

Judging by the number of column inches it receives, it is easy to presume FDI represents the answer to all the continent's economic and financial problems. Certainly, governments have invested in enticing financial incentives and in the liberalisation of regulatory frameworks to open up sectors to FDI.

However, it is important to remember that FDI is only one part of the equation and any analysis of its contribution to Africa's economic growth needs to be set into a wider context that looks at the continent's investment climate as a whole. I firmly believe that such a focus on FDI is damaging to Africa's long-term growth. It is akin to believing that aid will solve Africa's problems long term--in other words, that Africa's solutions can only be delivered by outside agents. The reality is that African governments have a much more profound role to play when it comes to unlocking Africa's investment potential than outside investors do.

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Unless we address the fundamentals that continue to hamper Africa's businesses, especially at an SME level--namely, practical struggles with bureaucracy, regulation, red tape and infrastructure--long-term economic growth will continue to elude the continent. Unless African governments seize the opportunity to transform their respective business environments, any outside interest in the continent as an investment destination will prove temporary and self-rewarding.

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Business climate

The good news is that many African governments are starting to recognise the value of improving investment climates. Many now acknowledge that they have historically paid too little attention to local and regional trade, business and investment.

In doing so, they have missed key opportunities to stimulate growth, job creation and entrepreneurship, which in turn would have created an environment in which foreign investors felt confident and committed to investing. In other words, by prioritising improvements to business environments, governments can help create a virtuous circle in which FDI also thrives.

FDI soon dries up in countries where basic business-friendly legislation and regulations are not in place. Yet it flourishes when the domestic market is well governed with efficient processes and procedures.

It was well-articulated in the Report of the Commission for Africa (2005) that African governments need to play an active role in creating business environments to unlock local, regional and therefore foreign, investment potential.

Recognition that a healthy investment climate is vital for the continent's economic growth led to the establishment of the Investment Climate Facility for Africa (ICF) in 2006. Over the last two years we have been heartened by the increasing appetite for investment climate improvements being demonstrated by governments across the continent.

ICF is already working with the governments of Burkina Faso, Lesotho, Liberia, Madagascar, Mali, Rwanda, Senegal, Sierra Leone, Tanzania and Zambia, as well as regional economic communities, on a range of practical initiatives designed to make Africa an even better place to do business. …

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