The African Financial Review July-August 2014 | Page 44

Table 1. Global FDI flow (inward) as a percentage of GDP (1970-2010).
1970- 1975- 1980- 1985- 1990- 199574
79
84
89
94
99
World

100

100

100

100

100

100

2000- 2005- Average
04
10
100

100

100

Developing Economies

22.50

27.59

31.95

18.74

28.87

31.74

27.24

36.53

28.27

Africa

6.55

3.94

2.61

2.48

2.15

1.61

2.47

3.99

3.22

Developed Economies

77.49

72.41

68.03

81.24

69.45

66.91

69.01

64.51

71.13

America

24.64

26.47

36.68

42.25

20.74

24.78

18.83

17.71

26.51

Europe

44.99

40.75

26.88

33.68

44.31

39.11

46.15

37.93

39.23

Asia

LDCs*

4.51
0.92

10.59
1.501

18.34
0.86

9.95
0.48

19.62
0.69

18.61
0.64

16.87
1.31

22.47
1.75

15.16
1.000

Source: Author’s Computation from UNCTADSTAT, 2011.*= :Less Developed Countries.

surprising why the deve- loping countries were only able to attract
about 28 per cent of the total flow despite the established policies
to attract FDI inflow. Another reason could be linked to their
inability to adequately provide pre-requisite deter-minants of FDI
(that is, infrastructure, well functioning institutions, and stable
policies to mention but few). Classifying the flow into regions,
Europe recorded the lion’s share. Since the beginning of 1975, its
share had been on an increasing trend and this is after about 50
percent fall in the previous decade. It recorded an overall 39 per
cent of the total flow. Closely followed was America; all through
the period under study, its share had been relatively stable with an
overall average of about 27 per cent. The existence of the “Asian
Tigers” helped the region to record about 15 per cent. Its share
was not stable prior to 1990 after which it had been recording
an increasing trend. The reason attributed to this can be linked
to diversification of American MNEs to the region due to its
low labour cost, thus leading to industrialization in the region.

The distribution of the f low has been biased towards Africa.
This pattern remains palpable in spite of policy initiatives in a
number of African countries and the significant improvements
in the factors governing FDI flows. These factors include, but are
not restricted to, economic reform, democratization, privatization
and enduring peace and stability. The possible reason for this can
be related to the fact that FDI flow to countries in the region
which can boast of natural endowments (Oil and Agricultural
product). The end result of this is that only few countries (about
25 per cent) can be classified as countries that receive a relatively
reasonable amount of FDI. Therefore, this means that major FDI
inflows into Africa are resource seeking FDI.

Regional distribution of FDI

Table 2 clearly depicts that the larger share of the flow to
developing countries was recorded in the Asian countries. The
region was able to attract over half of the total global flow to
developing countries. The highest flow ever recorded was in the
period between 1985 and 1994 with a share value of about 60
per cent and after a decline, it has been stable. Asia was able to
attract a weighted average of about 53 per cent. America sits
on the second step of the ladder with a share value of about 32
per cent. Its share had been stable expcept for the mid to end
of 19th century. Africa continent as a whole was only able to
attract a meagre share. Throughout the period under study, it was
unable to attract 10 per cent of the total flow. The reasons that

44 | The African Financial Review

can be attributed to this might be related to political instability,
inconsistent policies, and poor infrastructure among others. The
same reasons explained above can also be attributed to the case
of LDCs. These set of countries experienced a relatively stable
share of the flow and was able to record an average of 4 per cent.
In the same line of reasoning, Oceania countries did extremely
poor as it was unable to attract a per cent share of the total flow.

Why does FDI impact positively on the growth
process of the Asian Tigers but negatively in
the African context? Why do non-Asian Tiger
countries (Brazil, Malaysia, and India) record
positive effects of FDI on growth and countries
in most of SSA do not? Could the answer to
these questions be linked to a well-developed
financial market?
Distance, they say, enhances trade. As a result of this, investors
would be skeptical in investing in regions that are far from the
rest of the world.

FDI and growth nexus

With particular reference to growth, the record in Africa, on
average, has been at best less than modest. Even the decade of
the 1980s has often been appositely labeled as a “lost” one for
the majority of countries in the continent. The scarcity of the
necessary capital flows for sustained economic growth has been
identified as one major clog in the wheel of economic prosperity
Africa wide. FDI, a critical component of these flows, according to
Ajayi (2006) has the potential to accelerate growth and economic
transformation. Although FDI to developing countries as a whole
appears to have risen over the period between 1991 and 2002,
these flows have been largely uneven with Africa at the lowest
step of the ladder. For instance, Africa’s share of total FDI to
developing countries plummeted from about 19 per cent in d
1970s to a little less than 10 per cent in 1980s, and declined in
the 1990s to an annual average of 4 per cent (UNCTAD, 2003).

This poor performance, on the basis of FDI inflow metric,
however masks significant disparities among African countries in
general. Nigeria, chiefly due to its large oil sector, has traditionally
been one of the biggest recipients of FDI inflows to Africa. Most