FDI+is+not+a+cure-all+for+Africa,+Ann+Crotty,+B+Rep



=Surprise! FDI is not a cure-all for Africa Business Report, Johannesburg, September 21, 2005=


 * By Ann Crotty**

Ooops, it does rather seem that two decades of obsessing about the need for foreign direct investment (FDI) in Africa may have been a tad misplaced.

Indeed, as you read through the latest report from the UN Conference on Trade and Development (Unctad) titled Rethinking the Role of Foreign Direct Investment, it's hard to avoid the disturbing thought that Africa might have notched up considerably more progress on the developmental score card if it had been ignored by the World Bank and others bent on rescuing the continent from itself.

It is equally hard to suppress the thought that one of the major advantages enjoyed by Europe and the US in their 19th century push for industrialisation is that they didn't have to suffer the intrusion of various world development bodies or of more developed nations looking for rich mineral pickings at cheap prices.

While the focus of the Unctad report is on the questionable role of FDI in Africa's development, its analysis includes a scathing attack on the various structural adjustment programmes that were forced on African governments in the 1980s and 1990s.

It also questions the appropriateness and effectiveness of strict adherence to ideologies tied to the supremacy of price mechanism and free markets in addressing Africa's development needs.

So, after 20 years, we're now told that FDI is not and was never the way forward for Africa. That, as Unctad puts it, "FDI responds to success rather than creates it".

Imagine if your doctor had told you for the past 20 years that the best way to avoid a heart condition was to add thick cream to every meal and avoid exercise.

And yesterday another medical expert suggested that maybe that wasn't the optimum health regime. This seems to be what is going on in development economics, except the stakes are much greater as it involves the health of hundreds of millions of people.

What is left unsaid by the Unctad report but is particularly galling is that while various inept African governments fiddled with these suspect development policies, the way was open for the powerful international companies to pretty much take what they wanted from the continent.

For the past 20 years FDI in Africa has been largely about mining in enclaves, with limited spillover benefits for the country or even nearby communities. This was surely the easiest possible form of wealth extraction in a post-colonial world.

The essential conclusion of the Unctad report is that there is little evidence that FDI has positive benefits for any African country.

Relatively high returns in Africa have not been sufficient to persuade the owners of capital to overlook the seeming lack of indigenous success on the continent.

Unless there is a relatively short payback period, capitalists will only want to venture into countries where the locals are already successful.

This partly explains why the largest FDI flows across the globe, by a very long shot, are between the US and the EU.

Not only does FDI have doubtful benefits but it seems that an industrial policy focused on attracting FDI may be stymieing the development of indigenous industries that would have more positive economic spillovers.

In what seems to be a radical departure from accepted wisdom, the Unctad report feels compelled to suggest that, "depending on its situation, a country may wish to limit or even exclude FDI".

This means that not only should African governments be much more circumspect in their approach to FDI, but that each government's approach should be informed by the particular circumstances that prevail in the country and in the sector.

The statement, and much of the report, represents a welcome break with the decades-old view that was drummed into policy makers in terms of which if African governments did pretty much everything they were told to do, then FDI would follow and the country would be saved.

The report challenges the argument that the only reason Africa has been relatively unsuccessful in attracting FDI is because it has not done enough to liberalise its policies and improve governance to satisfy foreign investors' demands.

Unctad responds that there has been an intensive period of adjustment "which has aimed to reduce the role of the state and covers all aspects of monetary and exchange rate policies, financial market reform, privatisation, deregulation and FDI liberalisation. In Africa these policies have been applied more repeatedly and vigorously than in any other region."

The likelihood that the report might prompt some rethink is somewhat diminished by the realisation that an Unctad report on the same subject, which was published about five years ago and also expressed some reservations about FDI benefits, received limited exposure and appeared not to have had too much impact on popular thinking on the subject.

Of course, it may be that with enough repetition some of Unctad's views will filter into popular perceptions.


 * From: http://www.busrep.co.za/index.php?fSectionId=553&fArticleId=2884666 **