The UN Conference on Trade and Development says foreign direct investment into Africa is not working and needs to be reviewed. A new UNCTAD report on Economic Development in Africa finds that the cost of direct investment in Africa usually outweighs the benefits.
In the UNCTAD report, the numbers look good. Foreign direct investment (FDI) in Africa has increased from $2 billion in the 1980s to $18 billion in 2003 and 2004. This is a nine-fold increase. Still, UNCTAD says, this represents only about two percent of global foreign direct investment.
UNCTAD Secretary-General Supachai Panitchpakdi says most of the foreign direct investment flows into Africa's mining or oil extraction industries and very little of it benefits the country's overall economic development or its population.
"The expectation for FDI to create growth, to create diversification, technological spillover and jobs has not been fully realized," he said. "From a national perspective, there might be a need to be a reconsidering of the strategic industrial policies, to be able to identify the areas in which FDI can help domestic economies."
Mr. Supachai says African governments should try to interest foreign companies in investing in their manufacturing and services sectors, which offer more opportunities for employment and help diversify their economies.
The report also finds that many African governments offer generous incentives to attract foreign capital and doing so, often lose more than they gain. It urges the governments to carefully assess the costs and benefits before granting tax holidays or other incentives to potential investors.
The report cites Tanzania and Ghana as examples of countries, which attracted large amounts of foreign capital into their gold mining industries, but failed to reap the benefits.
Kamran Jousari is UNCTAD's special coordinator for Africa.
"While investment has gone up tremendously and exports have gone up tremendously, the fact is that Ghana receives only five percent of the total export value of the gold," said Kamran Jousari. "So, the truth is that in Africa, as we mentioned in the report, you have something like $15 billion of investment in the extractive sectors. Now, you might say that this is a very positive thing, but you have to look at what are the costs and what are countries actually getting out of that investment."
The report says mining and oil drilling generates very little employment and has a negative impact on the local economy. In addition, it says environmental and social costs can be very high and need to be considered when gauging the impact of foreign capital on local costs.