Foreign Direct Investment in Sub-Saharan Africa

Running head: ECONOMICS
Economics
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ECONOMICS
Foreign direct investment in Sub –Saharan African region
Introduction
Most of the African countries have been struggling for coming out of the poverty
where the foreign direct investment have benefitted Africa a lot. The foreign direct
investment known to have play a significant role as a source of financing a lot of developing
countries. The economic reform known to change the government focus towards the need of
capital, technology and need of skills. The foreign direct investment known to have
contributed the growth of the economy in a sustainable manner where it presents a more
stable option to other forms of flow of capital (Adams and Opoku, 2017). FDI provides the
much needed capital for investments and will increase the competition in the host country
industries. It aids local firms for becoming more productive as it will allow them for
adopting more efficient technology. Increasing the foreign direct investment will enable
Africa for rising productivity and will also expand high value added activities. The FDI is an
integral part of an open and effective economic system and also are the major catalyst to
development. The government of Africa have been trying to lift the country out of the
economy doldrums.
Inward foreign direct investment
The foreign direct investment is a type of investment which is made by a firm or an
individual in one country in to the business interest located in another country. FDI basically
takes place when an investor establishes foreign business operations o known to acquire any
foreign business asset which includes ownership or controlling interest of a foreign company.
An inward foreign direct investment takes place when one company is known to purchase
another business or establishes new operations for the existing business in a different country.
The inward FDI often known to result in a significant number of mergers and acquisitions.

ECONOMICS
The inward investments also help the companies to grow and can open borders for
international integration (Asamoah, Adjasi and Alhassan 2016). Inward investment are also
known to bring an influx of wealth into the country which helps to diversify its base of
revenues, generate additional tax revenue and also offer jobs and opportunities for building
skills for the residents.
During the last three decades there had been a rise in the foreign direct investment, however,
it is found that Sub Saharan African countries did not receives adequate amount of foreign
direct investment. FDI is unevenly distributed only in a few sub Saharan African regions
which is known to receive only significant amount of inflows of FDI.
FDI in sub Saharan Africa
The foreign direct investment is always considered to be beneficial and vital for most
of the countries. Also, in terms of the capital flows, FDI is considered much important than
the trade. However, it have been seen that the countries in the sub Saharan African region that
FDI is not that popular. One of the reason behind this is that the used to regard foreign capital
with suspicion with the fears that was largely based on the likelihood of a loss of political
sovereignty. They also had this fear in mind that FDI would lead to rise in competition which
would negatively affect the domestic market and can also lead to rapid degradation of the
natural resources (Nondo, Kahsai and Hailu 2016). Therefore, many policies had been
introduced in order to deter foreign capital. The second reason behind the small share of FDI
was also the unattractive location for the firms, low quality of labour and also due to lack of
proper infrastructures. Other reasons include costly and inefficient financial systems and long
distance from the export markets.
Importance of foreign direct investment

ECONOMICS
The foreign direct investment is essential for both the developing and emerging
market countries. There are various advantages as well as disadvantages of foreign direct
investment.It will help in stimulating the economic development of the country. FDI will
benefit the global economy, recipient as well as investors. The investors also seek the best
return with the least risk (Seyoum, Wu and Lin 2015). The foreign direct investment also
known to create new jobs as investors build new companies in the target company which will
be creating new opportunities. This will lead to an increase in income with rise in the buying
power of the people. The increase in income along with the buying power of people will lead
to economic boost. Another advantage of FDI is that it helps in developing the human capital
resources. It also allows transfer of resources and other exchange of knowledge where other
countries are given access to new set of skills and technologies. It also creates new
opportunities for the workers. Employees of the investing company get the access to travel
overseas and experience new culture and ideas which will be making them more productive
at home. The foreign workers also have the better access to the best practices which helps
them in creating new opportunities. FDI also known to improve the human resources (Nondo,
Kahsai and Hailu 2016). In case of underdeveloped as well as developing countries, the
human skills are limited to the basic labour, agricultural work and other entry level skills. The
foreign direct investment is known to create educational opportunities such that people can
improve their personal skill base. With the better skills, higher wages can be earned.
FDI also helps in reducing the cost of production in those cases when the labour
market is cheaper and the regulations are comparatively less restrictive in the foreign
markets. FD is also an effective way for acquiring important natural resources. The inward
investment comprises a foreign entity who is either investing or purchasing goods of the local
economy. The FDI net inflows are the value of inward direct investment which are made by
the non resident investors in case of the reporting country. The inward direct investment are