Addis Ababa, 16 September 2005- A new UN report suggests that excessive emphasis on attracting foreign direct investment (FDI) may distort development policy in Africa, and in some cases FDI could actually limit long-term growth potential.

The report by the UN Conference on Trade and Development (UNCTAD) calls for a more balanced policy approach as part of the package to achieving the Millennium Development Goals.

”In the past, foreign firms steered a development course for Africa at odds with local needs; today, attracting them is often presented as the region´s assured path to economic renewal,” says the 2005 report entitled ‘Economic Development in Africa: Rethinking the role of Foreign Direct Investment’.
But, it notes, that despite major policy efforts including liberalization, privatization and deregulation, the continent has received a very small portion of global flows. And the idea that openness to foreign firms will transform Africa’s investment climate is not confirmed by the adjustment record of the past 20 years.

Those adjustment programmes, the report says, "have done little to alter the region´s pattern of structural change and positive integration into the global economy". These, more than governance failures, have “constrained and distorted” FDI flows to Africa.

It says the idea that Africa is a reluctant host to foreign capital is a myth. On the contrary, attracting FDI has become the industrial policy of choice for many governments.

But, the report points out, policies to attract more FDI through a further push for rapid liberalization and downsizing the state will not do the job. A rethink is needed.

It says regional trading arrangements can help expand exports. Larger markets can also attract FDI, including from other developing countries. A fresh look at the East Asian experience where industrial policies, FDI and regional dynamics were, to varying degrees, part of a late industrialization drive could also offer useful lessons.

“But getting policy coherence right also means focusing on bilateral and regional initiatives, which often push beyond multilateral agreements, and on the tenuous promise of bringing more FDI,” it says.

[Click here for full report:
http://www.unctad.org/Templates/WebFlyer.asp?intItemID=3490&lang=1]