Foreign direct investment (FDI) in Africa by developing Asian economies is on the rise and could potentially reach much higher levels through a shift from commodities to industrial products, according to a new United Nations report which details methods to strengthen development cooperation between the two regions.
The report, a joint effort by the UN Conference on Trade and Development (UNCTAD) and the UN Development Programme (UNDP), said that Africa has been hampered from being integrated into the global marketplace by such factors as small market size, poor infrastructure, debt problems and political instability.
However, there has been considerable progress with reform in the economies of several African countries in the last decade, and thus “the challenge is to find ways and means of harnessing more investment,” said the report, entitled “Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries,” which was released yesterday.
Since the 1990s, outward FDI from developing Asian economies has grown significantly, reaching a new high of an estimated $90 billion in 2006. Although only a small percentage of FDI from Asia is currently earmarked for Africa, this is expected to change.
The report also said that African Governments could benefit from the examples set by many Asian countries, which have seen high economic growth and upgraded industrial activity. These countries made targeted investments in education and infrastructure which fostered economic development and also allowed them to attract and benefit more FDI.
“Asian FDI to Africa is likely to continue to grow, in view of the complementary nature of economic development between Asian and African countries,” the report contends. “In particular, the rapid economic growth in Asia can be expected to lead to increased Asian investments in Africa, in natural resources, manufacturing as well as services.”
Among the report’s recommendations to stimulate further Asian investment in Africa are: attracting manufacturing projects and fostering domestic capabilities necessary for such activities; adopting proactive policies to spur FDI that leads to broad-based growth; and enhancing productive capacities in a variety of industries.