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Promoting of Investment in Africa∗
John C. Anyanwu∗∗
Abstract: This paper examines the trend, constraints, promotion, and
prospects of investment – domestic investment, foreign direct investment,
and private portfolio investment – in Africa. After identifying the importance
of investment in Africa’s economic development, it was shown that all
forms of investment are low in Africa and hence inadequate for the
attainment of the MDGs and poverty reduction in the continent. The
constraining factors include: low resources mobilization; high degree
of uncertainty; poor governance, corruption, and low human capital
development; unfavorable regulatory environment and poor infrastructure,
small individual country sizes; high dependence on primary commodities
exports and increased competition; poor image abroad; shortage of
foreign exchange and the burden of huge domestic and external debt;
and undeveloped capital markets, their high volatility, and home bias by
foreign investors. The paper recommends that successful promotion of both
domestic, foreign direct and portfolio investment in Africa will require
actions and measures at the national, regional, and international levels.
It concludes that the prospects are bright. New and attractive investment
opportunities are emerging in infrastructure, particularly as most African
countries now encourage public/private partnerships for investments in
this sector. In addition to privatization, renewed interest within Africa
in undertaking regionally based projects and joint exploitation of natural
resources is creating other investment opportunities. Apart from the fact
that investment in Africa yields the highest returns, investment risk in the
continent is declining. In addition, much progress has been made in recent
years to improve the investment climate in Africa. All this is of course is not to
∗The paper was originally was presented at the JAI/IMF High-Level Seminar on Financial
Development and Integration in Africa, Tunis, December 10–12, 2003. The paper was pre-
pared with the assistance of Mr Henock Kifle, then Director (now Chief Economist and Ag. Director,
Development Research Department), African Development Bank. The views expressed herein are
those of the author and not necessarily those of the African Development Bank Group. However, the
author wishes to thank Louis Kouakou and Nirina Letsara for statistical assistance.
∗∗ Chief Research Economist, Research Division, African Development Bank, B.P. 323,
1002 Tunis Belvedere, Tunis, Tunisia; email: j.anyanwu@afdb.org.
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9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Towards the Promotion of Investment in Africa 43
deny that obstacles do remain hence economic reforms to enhance domestic
investment would need to be complemented by measures to attract increased
foreign capital. Critical in such endeavors must be efforts to improve
governance in some countries as well as to eliminate socio-political violence
in others and development of domestic capital markets, while government
institutions must be modernized and upgraded.
1. Introduction
For most of the 1980s and the first part of the 1990s, low or declining GDP
growth, combined with rapid population increases, brought about widespread
deterioration of socio-economic conditions in Africa. Consequently, while
per capita income increased in other developing regions between 1980 and
1995, Africa experienced an average decline of 15 percent during the same
period, with an estimated 40 to 49 percent of the population living in absolute
poverty (especially in sub-Saharan Africa) (World Bank, 2003).
After the mid-1980s, it was clear that comprehensive and credible
macroeconomic reform and adjustment programs were needed to stem the
deteriorating economic and social conditions. This led a number of countries
to pursue reform programs, with support from bilateral and multilateral
development agencies. The reforms aimed at stimulating economic growth
by putting in place incentives and measures that generate more savings,
investment and exports. Anchored on economic liberalization, the reforms
emphasized the more efficient functioning of markets and prices with the
view to unleashing private initiative and enterprise.
The policy reforms, which occasioned considerable public debate,
have, nonetheless, been credited with bringing about the turn around in
economic performance experienced during the last few years. Indeed,
the contribution of the reforms — which essentially aimed at improving
national economic management — gains in significance when considering
that the improved economic performance was achieved in the face of
declining real concessional flows and somewhat adverse terms of trade.
Thus, real output growth averaged about 3.4 percent per annum between
1995 and 2003 (see Figure 1), compared with an average of 1.5 percent
during the first half of the last decade.
It should be underlined, however, that the improved aggregate performance
still falls short of meeting the needs, and realizing the potentials, of the
continent. This is because, first, the overall performance masks differ-
ences in individual country circumstances and the severe socio-economic
difficulties that continue to prevail in some countries. Furthermore, the
better performance falls short of what is required to bring about perceptible
gains in the living standards of the substantial proportion of the population
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Figure 1: Africa: Real GDP growth rate (%), 1990–2004
1.3
0.7
3.0
5.4
3.5
4.4
5.1
3.4
3.2
3.1
3.4
2.4
2.1
0.1
3.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Years
Percent
afflicted by absolute poverty. Given current rates of population growth on
the continent, recent empirical evidence suggests that Africa would have to
achieve sustained rates of economic growth of between 7 and 8 percent, well
above twice that of the population in order to arrest and reverse the spread
of poverty.
Indeed, more improvements in economic policy and performance are
needed to enable the continent to reach the minimum growth rate nec-
essary to meet the Millennium Development Goals (MDGs) agreed by
the International Community in 2000. In this respect, an increase in
investment is crucial to the attainment of sustained growth and develop-
ment in the region. This requires the mobilization of both domestic and
international financial resources. Given the trend decline in Official
Development Assistance (ODA), the high volatility of short-term capital
flows, and the low savings rate of African countries, in the short run the
desired increase in investment has to be achieved through better domestic
resource mobilization and FDI flows to the Continent.
The main objective of this paper is to examine the state of investment
in Africa and propose some measures for its promotion in the Continent.
Thus, the further contents of the paper are as follows. Section 2 examines
the importance of investment in Africa while Section 3 presents a review
of recent investment record in the Continent. Section 4 gives the reasons
for low investment in Africa and Section 5 makes some policy recom-
mendations. Section 6 briefly examines the prospects and opportunities
for increased investment in Africa.
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Towards the Promotion of Investment in Africa 45
2. Importance of Increased Investment in Africa
Domestic investment is essential in Africa in order to (a) enhance eco-
nomic growth, (b) increase employment, and (c) reduce poverty. Domestic
investment is the engine of economic growth: it increases the productive
capacity of the economy, lays the foundation for higher future income, and
creates jobs. For Africa, sustained high levels of domestic investment are
imperative to achieve the growth rates necessary for raising the incomes of
poor people above the poverty line (DFID, 2001).
Also, in order to feed and provide its growing population with pro-
ductive jobs, African countries must raise the levels of domestic invest-
ment. Indeed, domestic investors could play a crucial dual role in poverty
reduction, first by providing funds for investment and ensuring their
efficient use and secondly, by directing investment to ensure desirable
economic and social outcomes. They can exert great influence over the
rate of growth of the economy by ensuring that capital finds its most
productive use, and ensure that projects maximize employment and are
in line with the principles of sustainable development.
Both domestic and international investors have the potential to play
significant roles in poverty reduction. The large share of investment in any
country is domestic. Even in China, recipient of the greatest amount of
foreign investment of all developing countries, foreign investment usually
contributes to less than 15 percent of total gross fixed capital formation.
Thus, while per capita growth has turned positive for sub-Saharan Africa as
a whole especially, much higher average growth rates, sustained over a long
period, are necessary to substantially reduce poverty and this requires much
higher domestic investment. Given the need for a growth rate of 7 percent
per annum, an annual investment of at least 25 percent of GDP would be
necessary to attain the international development goal of poverty reduction.
What is needed, therefore, is a more efficient strategy that would generate
growth through much higher levels of private investment, supported by the
necessary public investment in basic infrastructure (DFID, 2002).
In addition, foreign direct investment (FDI) can play an important role
in Africa’s development efforts, including:
•Supplementing domestic savings: Since African countries have low sav-
ings rates, which makes it difficult to finance investment projects
needed for accelerated growth and development, FDI can fill this
resource gap by providing investment for development resources.
•Employment generation and growth: By providing additional capital to
African countries, FDI can create directly new employment opportu-
nities resulting in higher growth. It can also increase employment
indirectly through increased linkages with domestic firms.
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46 J. C. Anyanwu
•Integration into the global economy: Openness to FDI enhances inter-
national trade thereby contributing to the integration of African coun-
tries into the global economy.
•Transfer of modern technologies: Foreign firms typically make signifi-
cant investments in research and development. As a result, they tend to
have superior technology relative to firms in developing countries. FDI
can provide African countries cheap access to new technologies and
skills thereby enhancing local technological capabilities and their abil-
ity to compete on world markets.
•Enhancement of efficiency: Opening up an economy to foreign firms
increases the degree of competition in product markets hence inducing
domestic firms to allocate and use resources more efficiently.
•Raising skills of local manpower: Through training of workers and
learning by doing, FDI raises the skills of local manpower thereby
increasing their level of productivity (Dupasquier and Osakwe, 2003).
3. Africa’s Investment Record
3.1 Domestic Investment
Domestic investment in Africa remains at depressed rates, which are
incompatible with accelerated and sustained growth. Hence in recent
years there has been concern about such low and declining domestic
investment rates. Total domestic investment as a proportion of GDP
fell from 25 percent in the mid-1970s to some 20 percent in the early
1990s, with private investment accounting for about 12 percent. In low-
income countries, the investment rate stands at some 17 percent, with the
share of private capital accounting for less than 10 percent. Specifically,
Africa’s domestic investment rate fell from 28.5 percent in the period
1974–80 to 22.3 percent during the period 1980–90. This fell further to 19
percent during the period 1991–2000, and averaging 19.8 percent during
the period 2001–2003 (Table 1 and Figure 2) but with public investment
remaining below 10 percent since 1989 (see also Everhart and Sumlinski,
2002).
As the trends in Table 2 and Figure 3 show, Africa has the lowest
comparative regional domestic investment rates. For the period 1991–
2000, on average basis, Africa recorded investment rates of only 19.8
percent compared to 34.5 percent in East Asia and Pacific, 24.1 percent
for Europe and central Asia, 21.3 percent for the European Union, 22.1
percent for high income countries, 26.3 percent for high income non-
OECD countries, 22 percent for high income OECD countries, and 20.8
percent for Latin America and the Caribbean countries. To Mlambo and
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Table 1: Africa: Economic growth and investment rates, 1991–2004
Africa 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004∗
Real GDP (%) 1.32.10.10.72.43.05.43.43.13.23.43.93.54.45.1
Gross Domestic Investment
(% of GDP) ... 20.320.119.220.020.119.519.420.620.118.919.620.120.020.1
Public Domestic
Investment (% of GDP) ... 4.84.85.04.84.94.94.95.55.15.25.75.55.96.0
Private Domestic
investment (% of GDP) ... 15.615
.314.315.315.214.614.615.215.213.413.514.214.615.1
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003∗2004∗∗
FDI Inflows to Africa
(Billion US $)
2.429 3.119 3.546 4.930 5.743 5.113 5.187 10.667 9.114 11.590 8.728 19.616 11.780 15.033
Notes:∗Estimates; ∗∗ Projections.
Source: ADB Statistics Division and IMF.
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Figure 2: Africa: Domestic investment ratio (%), 1991–2004
0.0
5.0
10.0
15.0
20.0
25.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Gross Domestic Investment (% of GDP)
Public Domestic Investment (% of GDP)
Private Domestic Investment (% of GDP)
Oshikoya (2001), such low domestic investment rates are a problem not
only because investment matters for growth, but also because low invest-
ment rates increase vulnerability.
Investigating the determinants of domestic investment in Africa,
Mlambo and Oshikoya (2001) further showed that macroeconomic fac-
tors such as fiscal deficit, domestic credit to the private sector, the real
exchange rate, and macroeconomic uncertainty explain a substantial part
of the weak investment performance in Africa. They therefore concluded
that the establishment of a sound macroeconomic framework is a pre-
requisite for sustained investment recovery in the Continent. Further,
they argued that in order to encourage domestic investment, the stability
and predictability of the incentive framework — relative prices, interest
rates, exchange rate, etc. — might be more important than the level of
incentives themselves. The authors were also of the view that there is the
need to accelerate public sector policy reforms, especially enhancing the
privatization and divestiture process, and for the enhancement of financial
sector reforms by restructuring the banking system, strengthening prudential
regulation and supervision, as well as deepening the capital markets.
However, Devarajan et al. (2001) have challenged the notion that
investment in Africa is too low. According to them, it is the productivity
of investment that is too low, being symptomatic of low capacity utiliza-
tion and shortage of skills. In their Tanzanian case study, the authors
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Table 2: Comparative regional domestic investment (% of GDP)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Africa 20.3 20.1 19.2 20.0 20.1 19.5 19.4 20.6 20.1 18.9 19.6 20.1
East Asia && Pacific 34.1 34.3 38.7 37.9 38.2 37.2 35.7 30.2 28.9 29.4 31.3 31.5
Europe && Central Asia 28.0 27.4 25.4 24.0 24.7 24.6 24.1 21.5 20.1 21.3 21.6 21.3
European Monetary Union 23.3 22.3 20.3 20.8 21.0 20.3 20.3 21.0 21.3 22.0 20.8 ..
High income 22.9 22.2 21.4 21.8 21.9 22.0 22.3 22.1 22.1 22.3 .. ..
High income: non-OECD 26.0 27.0 27.0 27.2 27.9 26.5 27.5 25.9 24.1 24.0 20.3 ..
High income: OECD 22.8 22.1 21.3 21.6 21.8 21.9 22.1 22.0 22.0 22.3 .. ..
Latin America && Caribbean 19.5 19.6 20.7 21.4 21.2 20.8 22.1 21.7 20.1 20.5 19.4 ..
Least developed countries: UN classification 16.0 16.2 16.3 17.2 18.2 20.0 19.4 19.5 19.8 19.1 20.0 21.6
Source: World Bank and ADB Statistics Division.
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Figure 3: Comparative regional domestic investment rates, 1991–2000
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Percent
Africa
East Asia and Pacific
Europe and Central Asia
European Monetary Union
High Income Countries
High Incme, non-OECD Count
High Income, OECD Countries
Latin America & Caribbean Countries
Years
concluded that public policies, insulation from market forces and weak
technological capacity rendered manufacturing capital unproductive.
Generalizing with this country case study, the authors suggested that
unless these factors behind the low productivity of investment are under-
stood, calling for increased investment to achieve higher growth rates
in Africa may be misplaced.
But Hussain (2000) had argued that in Africa where foreign exchange
is the binding constraint, emphasis must not be placed on only the
productivity of investment per se, but rather on the foreign exchange
productivity of investment. The author argued that in contrast to the
dominant development philosophy that emphasizes investment in human
and physical capital, in the absence of strong export performance; such
investments would be curtailed by the lack of sufficient foreign exchange.
Therefore, a growth strategy that concentrates on expanding investment
in human and physical capital without due regard to the ‘the foreign
exchange productivity of investment’ will be short-lived because the
balance of payments constraint will eventually put an end to such an
expansion, rendering resources, including human capital, underutilized.
Thus, fast and sustained growth necessitates lifting the balance of pay-
ments constraint on growth by producing the goods and services that are
attractive to the domestic as well as foreign markets.
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Figure 4: Investment and real GDP growth rates in selected African
countries, 1998–2002
0
5
10
15
20
25
30
35
40
Mauritius Mozambique Botswana
Countries
Ghana Tunisia
Percent
Investment Rate Real GDP Growth Rate
It is significant to emphasize that the above arguments are comple-
mentary rather than mutually exclusive or antagonistic. They show that
Africa needs (a) increased investment for higher and sustained growth;
and (b) increased productivity of its investment (in terms of domestic and
foreign exchange returns) through increased capacity utilization, skilled
and technological development as well as other supporting national,
regional and international policy measures.
It would appear that Africa’s recent economic recovery is mainly due
to reform payoffs and improved utilization of the existing stock of
capital. Sustaining and improving growth in the times ahead, therefore,
significantly depends on the extent to which the magnitude and produc-
tivity of investment are increased. Enhancing growth prospects by
increasing investment requires, importantly, mobilizing resources from
domestic savings, external private investments and official external flows.
In this connection, it is also noteworthy that a number of African
countries that have improved their macroeconomic policy and investment
Table 3: Domestic investment rates of selected performing African
countries, 1998–2002
Countries Investment rates Real GDP growth rates
Mauritius 24.74.8
Mozambique 36.78.7
Botswana 28.46.9
Ghana 23.04.3
Tunisia 26.74.4
Source: ADB Statistics Division.
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environment have made significant progress in increasing their over-
all domestic investment in recent years. For example, during the pe-
riod 1998–2002, estimates indicate these countries experienced fairly
high investment ratios: Mauritius (24.7 percent), Mozambique (36.7
percent), Botswana (28.4 percent), Ghana (23.0 percent), and Tunisia
(26.7 percent). Interestingly, during the same period, these countries
also experienced reasonably high economic growth with the latter mir-
roring the investment rates (Table 3 and Figure 4).
The case of some African countries in crisis (political or economic) is
also interesting to note. For example, during the period 1998–2002 Sierra
Leone had an average investment ratio of 5.9 percent and an associated
economic growth rate of 1.3 percent while Burundi had an average
investment ratio of 8.7 percent with associated economic growth rate of
1.9 percent. Also, during the same period, Zimbabwe had investment rate
of 10.9 percent and economic growth rate of –6.3 percent.
With respect to domestic resource mobilization, it is worth noting that
many African countries have undertaken financial reforms to enhance
savings through liberalizing interest rates, eliminating credit controls, and
reducing directed credit programs. These measures constitute the first steps
towards rendering the financial systems more responsive to mobilizing
resources. Other measures that are being taken include improving banking
infrastructures; developing non-bank financial instruments; and, support-
ing microfinance. It should be noted, however, that given the low-income
levels, there is a limit to which domestic resource mobilization can generate
sufficient resources to finance investments needed for sustained growth.
Domestic resource mobilization would, therefore, need to be complemented
by external resources, both private and official.
3.2 Foreign Investment Inflows
As an element of the rapid globalization process, FDI made rapid
increases in the last few decades. Global inward FDI flows rose from
US$59 billion in 1982 to a peak of US$1,393 billion in 2000. On an
annual average basis, FDI inflows increased from 23.6 percent in the
period 1986–1990 to 40.1 percent over the period 1996–2000. However,
global FDI flows decreased sharply by over 40 percent in 2001 and
decreased by another 21 percent in 2002 to US$651 billion. The decline
in global FDI flows in 2001–2002 represents the most significant downturn
of the past three decades. This has been attributed to a combination of
macroeconomic factors (weak economic growth or slump in economic
activity linked to the business cycles in many parts of the world, especially
the developed countries, and tumbling stock markets), microeconomic
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factors (low corporate profits, financial restructuring) and institutional
factors (winding down of privatization, loss of confidence in the wake of
corporate scandals and the demise of some large corporations).
Africa has never been a major recipient of FDI flows and so lags
behind other regions of the world. On an annual average basis, the
region’s share of global FDI inflows was 1.8 percent in the period
1986–90 and 0.8 percent in the period 1999–2000. A slight improvement
was observed in 2001 when inflows to the region rose from US$9 billion
in 2000 to US$19 billion in 2001, increasing the region’s share of global
FDI to over 2.3 percent. However, that increase was largely due to a
substantial increase in FDI flows to South Africa and Morocco. South
Africa and Morocco received more than 50 percent of the total FDI
flows to Africa. For South Africa, the rise was due to the unbundling
of cross-share holdings of companies listed on the London and
Johannesburg stock exchanges. In the case of Morocco, the huge increase
in 2001 is due to the sale of a 35 percent stake in the local telecommu-
nication operator, Maroc-Telecom, to France’s Vivendi Universal.
Unfortunately, in 2002 FDI inflows to Africa declined by 41 percent,
with such declines occurring in 23 countries of the Continent (UNCTAD,
2003). The downturn, from US$19.6 billion in 2001 to US$11.8 billion in
2002 (Figure 5), occurred at a time of worldwide slumps in FDI flows
before it reached US$15 billion in 2003 (Figure 5). The 2003 increase was
driven mainly by natural resources, and was spread more evenly among
countries as well as industries than the previous increase in 2001 (UNCTAD,
2004).
Figure 5: FDI inflows to Africa (US$ billions), 1991–2003
0.000
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
18.000
20.000
US$b
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Years
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54 J. C. Anyanwu
One major concern regarding FDI inflows into Africa is that the
overwhelming majority of these go into natural resources exploitation.
Of the top recipient countries, most of the flows into Angola, Algeria,
Sudan, Nigeria and Gabon were into oil and gas projects. Similarly, over
50 percent of the flows into South Africa and Tanzania were into gold
mining. Indeed, the primary sector was the largest recipient of accumu-
lated FDI outflows to Africa, with a 55 percent share for the period
1996–2000. Service industries have become more important in recent
years, with a 25 percent share.
Staff members at the International Finance Corporation (IFC) have
developed the FDI/business climate index with the ranking of 29 African
countries in 1995–1997 and 1998. In 1995–1997, the most attractive
country was Namibia, followed by Mali, Mozambique, Zambia, Chad, and
Senegal. Findings for 1998 indicate that there were not many changes in the
ranking, with Mozambique and Namibia still on the top list.
Recently UNCTAD computed indices for the performance of econo-
mies in terms of attracting FDI inflows. The inward FDI performance
index is computed as the ratio of a country’s share in global FDI flows to
its share in global GDP. For any given country, if the value of the index
is one, this means that the country receives FDI consistent with its
relative size. If the index is above one, it means that the country attracts
more FDI than should be expected given its relative size. Finally, a
country with an index below one attracts less FDI than should be
expected given its relative size.
For the period 1988–1990, countries in Africa and Latin America and the
Caribbean received fewer inflows than their relative size while countries in
Asia received more than their relative size. However, over the period 1998–
2000 and 1999–2001, countries in Latin America and the Caribbean received
significantly more inflows than their relative size while those in Africa and
Asia received less (see Table 4 and Figure 6). There was a decrease in the
value of the index for Africa from 0.80 in the period 1988–90 to 0.52 over the
period 1998–2000 while remaining almost at the same level over the period
1999–2001. Looking at the 1999–2001 index at a more disaggregated level,
we can observe that only one African country, Angola, appears in the top 20
while eight are represented in the bottom 20 (Niger, Cameroon, Zimbabwe,
Rwanda, DRC, Malawi, Libya, and Gabon).
Despite the poor performance of the African region in terms of FDI
flows, it should be stressed that several countries have made progress in
attracting FDI in the last few decades. These include Botswana,
Mauritius, Mozambique, Uganda, Lesotho, Namibia and Swaziland.
The principal reason is the efforts of these countries to promote political
and macroeconomic stability and implement structural reforms. Apart
from strong leadership, promotion of democracy and the adoption of
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Towards the Promotion of Investment in Africa 55
Table 4: Regional FDI flows, 1996–2003 (US$ billion)
Years
Regions 1996 1997 1998 1999 2000 2001 2002 2003
Developed
Economies
221.6 269.7 472.545 828.352 1107.987 571.483 489.907 366.573
Developing
Economies
149.8 193.2 194.055 231.880 252.459 219.721 157.612 172.033
Developing
Asia
93.7 109.1 102.209 112.588 146.067 111.854 94.383 107.120
Latin
American
and
Caribbean
Countries
50.273.382.491 107.406 97.537 88.139 51.358 49.722
Africa 5.210.79.114 11.590 8.728 19.616 11.780 15.033
Africa (%
of World
Total)
1.42.21.31.10.62.41.72.7
Africa (%
of Devel-
oping
Economies)
3.55.54.75.03.58.97.58.7
World 385.0 481.9 690.905 1086.750 1387.953 817.574 678.751 559.576
Sources: ADB Statistics Division and UNCTAD, FDI Database and World Investment Report 2004.
sound fiscal and monetary policies as well as appropriate exchange rate
policies, these countries have also adopted a framework of investor-
friendly policies through negotiations of various bilateral and multilat-
eral investment and trade treaties, which have acted as incentives for
multinational firms to locate their affiliates there. Such incentives have
included privatization, trade liberalization, and investment in human
capital. In Mauritius, for example, the creation of export processing
zones (EPZ) and the provision of specific tax incentives to investors have
yielded positive investment results. Also, the privatization of state-owned
enterprises has provided a number of African countries another channel
to attract FDI as evidenced in South Africa, Ghana, Nigeria, Zambia,
and Cˆote d’Ivoire.
However, in spite of these efforts to boost FDI flows to the continent,
they have not had significant impact in generally increasing FDI in
Africa as a whole. This is despite the fact of high profitability of foreign
investment in Africa. Studies have shown that in recent years the return
to foreign investment — at an average of 29 percent per year — is the
highest in the world (UNCTAD, 1999).
3.3 Private Portfolio Investment (PPI)
Portfolio equity flows (the smallest component of capital flows to developing
countries) are distinct from FDI flows in that they are motivated not by a long-
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56 J. C. Anyanwu
Figure 6: Regional FDI inflows (US$ billions), 1991–2003
term interest in controlling the destination firm but by financial returns.
Portfolio equity investment largely takes place when investors purchase
shares of a company through an international public offering (IPO), or buy
American or global depositary receipts (ADRs or GDRs). To a lesser extent,
venture capital investments and convertible bonds that give investors an
option to convert to equity at a later date are used as vehicles for portfolio
equity flows.
After a dramatic surge in the early 1990s—from negative US$4 billion
in 1990 to a peak of US$86 billion in 1993, net portfolio equity flows
(to emerging markets and developing economies)—comprising gross flows
through international public offerings (IPOs), American or global depositary
receipts (ADRs or GDRs) and net purchases of stocks in the secondary
market—collapsed after the Asian crisis and have remained modest ever
since. It has indeed remained hugely negative since 2001 (see Table 5 and
Figure 7).
Unfortunately, too, net private portfolio investment has not fared well in
Africa, rising from US$3.6 billion in 1994 to a peak of US$49.117 billion in
1999 and falling to a huge negative US$7.655 billion in 2001 (Table 5 and
Figure 7).
4. Reasons for Low Investment in Africa
The economic literature presents a wealth of empirical work with respect
to the major determinants of investment and capital flows to developing
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Table 5: Regional net private portfolio flows, 1996–2003 (Billion US $)
Years
Regions 1996 1997 1998 1999 2000 2001 2002 2003
Emerging
Market and
Developing
Countries
85.617 60.399 42.491 69.136 20.476 −86.883 −90.031 −9.941
Central &
Eastern
Europe
1.904 5.404 −1.394 5.654 3.079 0.458 1.439 7.102
Commonwealth
of
Independent
States
−0.086 17.589 7.716 −3.075 −6.063 −9.238 −8.211 −4.786
Emerging Asia 32.03 6.826 8.71 55.806 20.05 −57.573 −61.985 2.538
Middle East 0.34 −6.753 −2.322 0.681 3.899 −2.9−4.893 −5.099
Western
Hemisphere
48.187 29.907 25.508 0.953 1.27 −9.972 −15.503 −10.121
Africa 3.242 7.425 4.273 9.117 −1.759 −7.655 −0.877 0.425
Africa (% of
Emerging
Market &
Developing
Countries)
3.787 12.293 10.056 13.187 −8.591 8.811 0.974 −4.275
Source: WEO 2005 (April), IMF, April 2005.
countries. These revolve around the relative importance of ‘pull’ versus
‘push’ factors. The pull factors or domestic factors include economic,
socio-political and structural conditions, including uncertainty, while the
push factors relate to cyclical and structural conditions, irreversibility
Figure 7: Net private portfolio flows to Africa (US$ billions),
1991–2003
-8
-6
-4
-2
0
2
4
6
8
10
US$b
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
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and herding (see Fern´andez-Arias, 1996; Fern´andez-Arias and Montiel,
1996; Gottschalk, 2001).
However, a number of reasons have been adduced for the low level of
investment in Africa, ranging from political and macroeconomic instabil-
ity to inhospitable regulatory frameworks and weaknesses in infrastruc-
ture provision, governance, and institutions in general. The major factors
emerging from the literature are discussed in the following subsections.
4.1 Low Domestic Resource Mobilization
This has been due to low savings ratio, inefficient capital markets, and
huge capital flight. The African savings ratio is very low, averaging 18.1
percent between 1999 and 2003. Aggregate savings are low because of
low per capita incomes, low exports/GDP ratios, high and variable
inflation rates, low deposit interest rates, poor financial intermediation,
and high birth rates, which increase the proportion of the population
under 15. Also, African financial markets (money and capital) are ineffi-
cient, underdeveloped, and inaccessible to most savers and credit-seekers.
This hinders adequate domestic savings mobilization and the attraction
of foreign capital for domestic investment (see Adera, 1994). Empirical
evidence has shown that 40 percent of all private financial assets in Africa
are invested in countries outside the continent. Apart from money laun-
dering and hiding away public stolen funds, such flight capital indicates
that domestic investors in many of the poorest countries of Africa make
the same assessment of the investment climate as foreign investors do. As
long as investors do not invest in their own countries, one can hardly
expect foreign investors to do so. There is no better factor to con-
vince foreign investors than for them to see that Africans both based
at home and in the Diaspora invest in Africa.
4.2 High Degree of Uncertainty
One of the reasons why investors are reluctant to invest in Africa despite
its enormous profitable opportunities is the relatively high degree of
uncertainty on the continent, which exposes firms to significant risks as
manifested in three principal ways:
•Macroeconomic instability: Instability in macroeconomic variables as
manifested by large external deficits, double-digit inflation, foreign
accounts deficits, and excessive budget deficits, has limited Africa’s
ability to attract both foreign and domestic investment. Brunetti and
Weder (1998) have shown that uncertainty matters for investment,
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concluding that a lack of rule of law, high corruption and volatility
in real exchange rate distortions are the most detrimental for
investment. Unfortunately, investment generally has responded very
slowly to adjustment in Africa. This is primarily because investments
cut capital spending as part of fiscal stabilization, while the private
sector adopts a wait-and-see attitude during the early phases of adjust-
ment as a result of the irreversibility of investment decisions and the
reversibility of major policy changes (see World Bank, 1994).
•Political instability: Many African countries are politically unstable
because of the high incidence of wars, frequent military interventions
in politics, and religious and ethnic conflicts. These help investors
to perceive the entire continent, though erroneously, as unstable for
investment purposes. The fact that political instability is contagious,
given the interdependence of many African countries, has not helped
matters (see also Mlambo and Oshikoya, 2001).
•Lack of policy transparency: In the past it has been difficult to assess
specific aspects of government policies. This is due in part to the high
frequency of government as well as policy changes on the continent
and the lack of transparency in macroeconomic policy. The lack of
transparency in economic policy is of concern because it increases
transaction costs thereby reducing the incentives for foreign investment
(Dupasquier and Osakwe, 2003).
4.3 Poor Governance, Corruption, and Low Human Capital
Development
Weak law enforcement stemming from corruption and the lack of a
credible mechanism for the protection of property rights are major
factors inhibiting investment in Africa. In particular, Everhart and
Sumlinski (2002) found that corruption lowers the quality of public
investment, which in turn lowers private investment. Also, foreign inves-
tors prefer to make investments in countries with very good legal and
judicial systems. Many African countries are characterized by low invest-
ment in human capital hence high illiteracy, inadequate access to health
services, lack of skills and adaptation to technology hence low capacity
to absorb physical capital.
4.4 Unfavorable Regulatory Environment and Poor Infrastructure
The lack of a favorable investment climate, including slow and
complicated business requirements, inefficiency, and bureaucratic
red-tapeism, also contributes to the low FDI trend and domestic
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investment observed in Africa. In the past, domestic investment poli-
cies — for example, on profit repatriation as well as on entry into
some sectors of the economy — were not conducive to the attraction
of FDI. Though some progress has been made in this area in the past
few years, more needs to be done. In addition, the absence of an
adequate supporting infrastructure such as telecommunication, trans-
port, power supply and skilled labor, discourages domestic and for-
eign investment because it increases transaction costs and reduces the
rate of return on investment.
4.5 Small Individual Country Market Sizes
Relative to several regions of the world, individual country domestic
markets in Africa are quite small and often fragmented. This is worsened
by inadequate liberalization of intra-regional trade, hence limiting trad-
ing opportunities for potential investors. It also makes it difficult for
foreign firms to exploit economies of scale and so discourages entry (see
Anyanwu, 1998).
4.6 High Dependence on Primary Commodities Exports and
Increased Competition
Several African countries rely on the export of a few primary com-
modities for foreign exchange earnings. Because the prices of these
commodities are highly volatile, they are highly vulnerable to terms-
of-trade shocks, resulting in high country risk thereby discouraging
foreign investment. In addition, globalization has led to an increase
in competition for FDI among developing countries thereby making it
even more difficult for African countries to attract new investment
flows. The intensification of competition due to globalization has
made an already bad situation worse. The intense competition result-
ing from trade and financial liberalization puts African countries at a
disadvantage because they have failed to take advantage of the glo-
balization process — for example, through deepening economic
reforms needed to increase their competitiveness and create a suppor-
tive foreign investment environment.
4.7 Image Issue
One of the greatest hindrances to investment in Africa is the negative
perception of the continent, especially through adverse media.
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4.8 Shortage of Foreign Exchange and the Burden of Huge
Domestic and External Debt
In spite of the Heavily Indebted Poor Countries (HIPC) initiative, which
has helped to reduce the external debt burden of a number of African
countries, many of these countries are still beset by the burden of both
domestic and external debt (see Anyanwu and Erhijakpor, 2004). Domes-
tically, this discourages investment because the debt overhang distorts
the incentive to invest while potential investors expect higher taxation to
finance government debt quite apart from the fact that huge domestic debt
adversely affects domestic savings, corporate efficiency and hence domestic
investments. Also, potential foreign investors are discouraged from the huge
resource requirements for servicing foreign debt as they become uncertain
that the government will authorize the remittance of profits and provide
foreign exchange for necessary imports. In addition, many African countries
are characterized by chronic shortage of foreign exchange and restrictions
on foreign currency transfers. These restrict the importation of spare parts
and inhibit the maintenance of existing plants and machinery thus limiting
domestic and foreign investment.
4.9 Underdeveloped Capital Markets, their High Volatility,
and Home Bias
The modesty of portfolio equity flows since the Asian crisis may be attributed
to underdeveloped stock markets, their high volatility, the subordinate status
of equity compared to debt, and “home bias” in industrial countries. Indeed,
a major constraint to the growth of foreign equity investment in Africa is the
small size of stock markets in the continent as in other developing countries.
Generally, market capitalization as a share of GDP in low-income countries is
about one-sixth of that in high-income countries. Even in the middle-income
countries, the share is only about one- third of that in industrial countries.
With 53 countries, the African continent has over 20 active stock exchanges,
including one of the only regional stock exchanges in the world, linking eight
French-speaking countries in West Africa. With a market capitalization of
over US$ 180 billion in South Africa, Africa hosts one of the largest stock
markets in the world. This is in stark contrast to the other African stock
markets that have comparatively small market capitalization – standing at
only 0.7 percent of the global total and 7.6 percent of emerging markets in
2001 (UNDP, 2003). With the exception of the South African market and
to a limited extent the North African markets, African stock markets are
described as “frontier markets”. Relatively small capitalization and liquidity
levels typically characterize these markets. As a consequence, most of these
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markets are excluded from the main regional equity market indices and as a
result attract little Global Emerging Markets (GEM) portfolio funds.
Regulations such as limits on foreign ownership and restrictions on profit
remittances also impede the inflow of portfolio equity to Africa. Institutions
that supervise and support the operation of the stock exchange are also weaker
in the continent than in developed economies. Also, stock exchanges in
Africa lag technologically behind developed markets. Since technology plays
a major role in the trading, clearance, and settlement processes; problems in
those areas discourage sophisticated investors.
Studies have shown that the volatility of annual returns since 1990 show
that emerging-market stocks are the most volatile asset class. According to the
World Bank (2005), during 1990–2003, the standard deviation of returns on
emerging-market portfolio equity exceeded 24 percent annually, compared
to a standard deviation of lower than 7 percent for developed-country bonds-
between November 1993 and March 2003 the figure for Africa was higher
than that of the emerging markets at 11.3 percent (Niepold, 2003). These
are not helped by high transaction costs, which also discourage investors in
emerging-market equity.
Also, the existence of home bias in and between industrial countries,
however, implies that cross-border capital flows—and in particular, the level
of capital flows to developing countries—will fail to reach their full potential,
underscoring the need for developing countries to nurture their own domestic
equity markets, as well as to undertake reforms to reduce the costs of
international diversification, including international taxes, barriers to trade,
limits on foreign ownership, information costs, and market inefficiencies
which discourage foreign equity investors.
In addition, in the initial phases of privatization, public enterprises issued
shares; nonresident investors bought some, causing portfolio equity flows to
swell. However, as privatization deepened and nonresidents purchased more
shares, the 10-percent-ownership threshold that divides portfolio equity from
FDI was crossed in many cases, resulting in reclassification of portfolio
equity as FDI. Thus, portfolio flows collapsed as mergers and acquisitions
(M&A) related flows began to rise.
5. Policies for Investment Promotion in Africa
Successful promotion of investment in Africa will require actions and
measures at the national, regional, and international levels.
5.1 Actions and Measures at the National Level
First, at the national level, African countries will need to continue to
deepen the reforms that they have embarked on in the last decade.
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Maintaining a prudent macroeconomic stance and avoiding policy rever-
sals are critical for preserving the stability and predictability of the
investment climate and for building investor confidence.
Second, increased efforts are required to mobilize increased domestic
savings, including the implementation of tax reforms, cost sharing in the
provision of public goods and services and enhancing public expenditure
productivity. Tax reforms should focus on broadening the tax base,
emphasizing indirect taxes/value added tax (VAT) (and hence keeping
marginal and average income tax rates low), raising tax elasticity with
respect to economic growth, reducing exemptions, simplifying and
improving tax administration, especially developing more efficient and
effective tax collection systems. These will encourage investments without
jeopardizing increased resource mobilization.
Third, high priority should be given to continued improvements
in governance systems and human capital development. Governments
should be accountable for their actions, allow the rule of law to prevail,
as well as respect private property rights. Further efforts should also be
made to improve the efficiency and effectiveness of public institutions, if
these are to serve as genuine partners for the private sector. Sustainable
economic development also needs increased human capital investment to
enhance the health and welfare of populations and generate the skills
required in a competitive global environment. As human capital forma-
tion in Africa is now being severely threatened by the HIV/AIDS pan-
demic, a concerted response is needed to contain and stop it.
Fourth, a particular concern of the private sector, and a matter that we
have brought to the attention of governments, is the need to improve
the legal, judicial, and regulatory, and infrastructural environment. Too
often, outdated legal systems, weak judicial system, and inadequate
regulatory environments discourage private investment. And as govern-
ments liberalize their economies and divest state-owned enterprises,
such systems are critical if the private sector is to take over such enterprises,
invest additional resources, and operate them efficiently. These will also
encourage the repatriation of flight capital for domestic investment.
African governments need to pay additional attention to making their
economies more competitive and attractive to investment. A critical step
in this regard is improvement in physical infrastructure that is best
achieved through public/private partnerships.
Fifth, as countries put in place a sound economic environment and
improve their investment climate, a useful tool that they could consider is
to have their countries rated by one of the international rating agencies.
This is particularly important for boosting investor confidence in these
countries. A few countries in Africa, particularly in North and Southern
Africa, have been rated. And recently Senegal sought and obtained a
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rating from Standard and Poor’s, which has put it at par with several
medium-income countries. And while Senegal is unlikely to borrow from
the international capital market directly, its rating is nonetheless impor-
tant in giving important assurances to private investors.
Sixth, a number of countries have already begun implementing neces-
sary changes notably in the area of trading and settlement systems and
regulatory regimes that will continue to improve. Three major trends will
significantly transform African stock markets: a set of substantive legal
rules that meets a set of clear, well functioning, and reliable securities
laws; improved trading infrastructure; increased participation by local
institutions; and increased market liquidity combined with promising future
listings.
5.2 Actions and Measures at the Regional Level
The first area of action at the regional level involves the use of a regional
surveillance mechanism based on peer pressure such as NEPAD’s (the
New Partnership for Africa’s Development) African Peer Review
Mechanism (APRM) to promote good governance and thus improve
the investment climate on the continent.
Second, enhanced regional integration will increase market size in
Africa and help attract investors currently constrained in part by the
small size of domestic markets on the continent. Also, strengthening of
regional integration groups will be useful in reducing the incidence
of domestic policy reversals and improving the credibility of economic
policies in Africa. Thus, in an environment in which national govern-
ments have a credibility problem, regional groups can provide an exter-
nal agency of restraint on domestic policies.
Third, there is need to initiate and encourage more cooperation in
infrastructure development projects such as in telecommunications,
transportation, power generation, and water supply. This will not only
increase access to and reduce the cost of provision of these facilities, but
will also help to lower transactions costs, boost trade, and increase the
attraction of the continent to foreign investors.
Fourth, there is need to promote and deliberately support the devel-
opment of the domestic capital markets and put in place supportive
infrastructure for the markets. African governments should adopt a
sub-regional approach to the support and development of capital mar-
kets, so as to strengthen their catalytic role in mobilizing savings.
Indeed, Regional integration – together with further macroeconomic
and structural reforms – could help African capital markets develop and
overcome the impediments related to size and liquidity. African governments
should support developing African regional and continental stock exchanges
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because this will facilitate the development of more efficient and competitive
markets throughout Africa. Individual exchanges should aggressively pursue
cross-listings and linkages with other exchanges. Multiple listings and cross-
border trade in securities could be an option in setting up sub- regional stock
markets.
Building strong financial systems would definitely be part and parcel of
the process of deepening and broadening financial intermediation on
the continent. Opportunities for enhancing the role of the International
Finance Corporation (IFC) and the Multilateral Investment Guarantee
Agency (MIGA) in catalyzing private sector investment in Africa should
also be explored.
5.3 Actions and Measures at the International Level
The first area requiring the assistance of industrialized countries is
improved market access for African exports. Developed country tariff
and non-tariff barriers continue to hamper Africa’s development pro-
spects. They also indirectly discourage foreign direct investment for
exports to the industrialized countries. The recent Africa Growth and
Opportunity Act (AGOA) of the US Government and the Everything
but Arms (EBA) Initiative of the European Community, as well as the
Association agreements signed between the European Community and
North African countries and South Africa, hold the promise of removing
some of these barriers. They may also have the effect of encouraging
investments from the USA and Europe in African countries as firms seek
to take advantage of the new opportunities created by these initiatives.
Indeed, the increased exports we are beginning to observe from some
African countries to the USA are very promising.
Africa’s international development partners should continue to facil-
itate the establishment of a more open and equitable trade regime.
Countries that have diversified their exports suffer from problems of
quality and lack knowledge of export markets and appropriate technol-
ogy. African exporters of agricultural products suffer from the high
subsidies in developed countries exporting similar agricultural products.
In particular, there continues to be widespread concern over the size of
budgetary outlays devoted to protect agriculture in developed countries.
However, current rules in agricultural trade prevent countries that have a
comparative advantage to fully specialize in this sector while facing more
liberalized markets in the industrial sector. In addition, it endangers the
livelihood of millions of developing countries’ farmers through unfair
competition resulting from subsidized imports. Tariffs applied by indus-
trial countries to developing country agricultural exports average
between 25 and 30 percent, as compared with an average of 15 percent
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for other industrialized countries. The level of agricultural subsidy and
domestic support in developed countries, which put the developing coun-
tries at competitive disadvantage, exceeds US$360 billion. It has been
estimated that the elimination of restrictions on agricultural trade alone
could lead to an income gain for developing countries of up to US$400
billion by 2015.
Unfortunately, since Doha Development Agenda Declarations, the US
increased various agricultural subsidies contradicting, in a sense, trade
guidelines in the Declarations. In June 2003, the European Union
adopted some changes in the Common Agricultural Policy (CAP), a
main aim of which is to break the link between subsidies and production.
The enormous 43 billion (US$50 billion) subsidies, widely criticized for
distorting global trade and hurting poor countries, will be reduced. The
main change is that in future, subsidies paid to farmers will no longer
depend on the amount a farmer produces but will be based on the size of
the farm, although out-based subsidies will continue for some crops and
beef products. But what is needed is the phasing out of all forms of
export subsidy. Unfortunately, the failure of the latest negotiations in
Cancun has posed a serious drawback in this direction. It is, therefore,
crucial to provide a level playing field for agricultural production and
exports, so that African countries can increase the resources for their
poverty reduction efforts.
Developed countries also need to support the effort to diversify exports
by reversing the trend towards escalating tariffs on processed products
and reducing the restriction on labor-intensive manufactures. Other
measures include supporting capacity building at the country level so
that African countries can take advantage of the opportunities that
globalization and expanded trade provide.
Africa’s development partners should consider more direct measures
such as enhancing existing guarantee schemes for private sector invest-
ment in Africa. These could be extremely useful tools for providing
additional incentives for private investors, particularly in the light of
the enhanced risk perception that many investors have of the region.
On their part, African countries could consider innovative financial
instruments such as the securitization scheme, as these could also serve
to provide additional security for prospective investors.
Since African countries are poor, and investment promotion is costly,
governments of developed countries can assist African countries in
investment promotion through providing accurate information to inves-
tors in their countries about the investment environment and opportu-
nities on the continent. This type of investment promotion is likely to
be more effective than the current approach used by African countries
because investors in developed countries take the information received
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from their governments more seriously than those from developing
countries.
Developed countries should continue to support the production and
supply of essential global and regional public goods. Actions at the
country level need to be complemented by global efforts to address
problems of communicable diseases, low levels of agricultural technol-
ogy, and environmental degradation. Recent efforts to fight the HIV/
AIDS pandemic, the resurgence of malaria, and tuberculosis are steps
in the right direction. The global community should also collaborate in
protecting the environmental commons, especially for the mitigation of
land degradation in many rural areas where most of the poor derive their
livelihood. In addition, Africa’s development partners need to push for a
‘green revolution’ in Africa by supporting the development and dissemi-
nation of new agricultural technology and farm production and manage-
ment systems. This should reduce food insecurity and improve the
nutritional status of children, contributing to lower child mortality.
Developed countries can also help improve investment conditions in
Africa and increase its attraction to foreign investors by providing more
technical assistance in areas of capacity building, infrastructure develop-
ment, and human capital development.
In addition, the donor community should continue providing effective
debt relief to African countries. The debt overhang of many African
countries has in the past served to discourage private investment. The
donor community has taken a major step in this direction through the
HIPC initiative. Because many HIPC countries faced serious terms-of-
trade losses in the last few years with the slowdown in the world econ-
omy, it is important to review their debt sustainability to see if the relief
provided, as well as the availability of new financing and its terms. In
addition, for the initiative to be effective, it is essential that it is funded
fully and that the debt relief provided does indeed result in sustainable
debt levels.
Moreover, Official Development Assistance (ODA) continues to be
critical for a large number of poor African countries as they reform their
economic systems and undertake investments in key sectors. Regrettably,
ODA flows to Africa have declined over the last decade. In line with
recent commitments made in the context of the Monterrey conference,
industrial countries should intensify the effort to reverse the large decline
in ODA to Africa and increase it to levels required to help countries
meet the MDGs. They should also work together to improve the quality
and effectiveness of aid through better alignment of effort. Donors often
do not coordinate the requirements they may set for their assistance and
tend to deal with different actors within countries. It is important there-
fore that aid be better aligned under the framework of national strategies.
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International support should also be intensified to help prevent and
resolve conflicts and civil wars that continue to undermine the
Continent’s potential for economic and social development as well as
hinder FDI inflows. The same applies to the repatriation of illegally
acquired funds stashed in foreign banks.
6. Prospects and Opportunities for Increased Investment
in Africa
Africa’s investment needs are both varied and large. These include invest-
ment in service delivery to enhance living standards, investment in infra-
structure to support economic activity, investment in human capital to
reduce poverty, investment in private sector development to secure sus-
tainable growth, and investment in reconstruction and rehabilitation to
rebuild post-conflict countries.
New and attractive investment opportunities are emerging in infra-
structure, particularly as most African countries now encourage public/
private partnerships for investments in this sector. In this regard, some
estimates suggest that annual infrastructure investment requirements in
Africa are about 5 to 6 percent of GDP, implying investment needs of
over US$250 billion during the next ten years alone.
In addition to privatization, renewed interest within Africa in under-
taking regionally based projects and joint exploitation of natural
resources is creating other investment opportunities. These and other
opportunities need to be disseminated much more widely to enable
African countries to attract a larger flow of foreign investment.
Apart from the fact that investment in Africa yields the highest returns,
investment risk in Africa is declining. The Economist Intelligence Unit’s
Country Risk Global Prospects Report for 2001 shows that the global
average risk rating for emerging markets has declined by four points,
or nearly 8 percent, since 1999. Sub-Saharan Africa, with an average of
59, is riskier than the emerging-market average, but then the regional
average has declined by two points (3 percent) from 61 percent in
1999.
In addition, much progress has been made in recent years to improve
the investment climate in Africa. These include marked progress towards
improved governance and democracy in a significant number of coun-
tries, including Kenya, Ghana, Nigeria, and Senegal, among others; great
strides had been made to improve the continent’s macroeconomic envir-
onment as reflected in prudent fiscal and monetary policies, increasing
reliance on the free market, and firm commitments to privatization; and much
greater stress is now being placed on attracting foreign private investment
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by improving regulatory frameworks, reforming investment codes, and
concluding bilateral investment treaties with other countries.
All this is of course not to deny that obstacles do remain. Economic
reforms to enhance domestic investment would need to be complemented
by measures to attract increased foreign capital. Critical in such endea-
vors must be efforts to improve governance in some countries as well as
to eliminate socio-political violence in others.
Government institutions have to be modernized and upgraded further.
The regulatory environment has to be improved. The financial sector
needs to be deepened and strengthened and much greater attention has
to be paid to creating efficient infrastructure services. The challenge
of creating a more attractive environment for the private sector thus
remains. Improvement in the quality of public institutions will greatly
help to attract investments. The traits of public institutions that most
attract investors are the quality (transparency and stability) of the reg-
ulatory framework, the effectiveness of the government in providing
basic services, control of corruption, and the degree of respect for laws
and regulations throughout society.
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