What Constraints Dwindle Foreign Direct Investment in Africa?

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  1. Foreign Direct Investment (FDI) is the process of controlling a firm in a non-native land without necessarily being present. In the recent past, foreign investors have been flocking to Africa and starting businesses. This is seen as a kind gesture to globalize African nations.

In fact, FDI is one of the ideal ways to boost exports from Kenya and open crucial financial leeway for Africans to trade with foreigners from all angles and grow economies. Most African countries are coming up with strategies to improve their system of production and reduce poverty. However, attracting investors, especially in list developed countries, remain a whole contentious issue. Below are constraints affecting Foreign Direct Investors (FDI) in Africa.

  1. Strait legal restrictions towards foreign direct investment

Unfavorable laws are significant challenges affecting TDI. Most economies in Africa lag due to strait policies that restrain foreign investors from doing business. For example, the Tunisian government does not allow foreigners to buy land. This undoubtedly dwindles the spirit of non-native entrepreneurs who would wish to have permanent firms in the nation. As it is, the move is affecting the significant efforts to food security in Tunisia.

Similarly, Nigerian FDI laws dictate that foreigners owning broadcasting licenses must surrender the company’s majority shares to locals. It also prohibits foreigners from obtaining equity stakes in private security firms. While the Nigerian government may be doing this for the goodwill of its citizens, investors seeking to put money into such fields may shy away. Taking a second thought of the current law, FDI can add one more excellent driving factor of industrialization in Nigeria, if addressed appropriately.

  1. Corruption activities in Foreign Direct Investment jurisdictions 

Research shows that graft continues to trouble most countries in Africa. According to a recent survey from Transparency International, Kenya ranks 137 out of 180 nations with a high level of corruption. Also, the corruption rate in Nigeria continues to affect the economy, forcing president Buhari to set strict measures for suspects.

Let’s face it; Kenya and Nigeria are among the fastest-growing nations in the continent. But, any country that lacks transparency in how it conducts its operations stands little chances of attracting investors.

Unfortunately, as it is, some rogue African leaders want to embezzle resources at every little opportunity they get. This presents a significant threat to investors who would wish to oversee their business from abroad. Consequently, corruption is seen as an additional cost of conducting business. It creates operational inefficiency and directly ruins the perception of a growing and investment potential country.

  1. Political instability

A country experiencing conflicts either from within or without undoubtedly records low economic growth. Similarly, few or no foreign investors would be comfortable starting a business, leave alone a Foreign Direct Investment. This scenario can best be seen in Libya. Despite the country having vast wells of crude oil, foreign investors still give a wide berth to pick up opportunities.

According to a recent report from the World Economic Forum, foreign direct investments dropped by 33% in the West and Southern African nations. This decline certainly reflects underdevelopment in countries like the Democratic Republic of Congo (DRC) and Burundi.

As a result, incapable patrons of the present governments take up offices and distort the economy and business environment in these countries. Therefore, foreign investors often feel intimidated and unsure of the certainty of the safety of their businesses and the stability of the currency.

  1. Poor infrastructure

A total of 34 countries in Africa lack adequate infrastructure to support FDI. In fact, Madagascar is one country still struggling to improve its dilapidated roads. The high numbers of impassable roads hinder most multinational firms in countries like South Africa and Nigeria from expanding their businesses in Africa. Nevertheless, the new kid in the block, Chinese, often have to construct essential infrastructures first before they start their firms.

Still, poor infrastructure raises the cost of production. As a result, most landlocked countries in Africa attract minimal foreign investors due to the cost of transporting raw material from the ports. This is arguably one of the reasons the East African community opts to build a joint standard gauge railway to open up Uganda and South Sudan.

Conclusion

Many underlying factors affect FDI negatively. However, the crux of the matter as far as attracting more foreign investors is of concern is to have good governance in Africa. Leaders should also be held accountable to their respective areas of stewardship. Furthermore, African countries should consider coming together and having joint development agendas. This way, essential amenities such as roads and airports will be easy to construct.

The Government of Kenya is a perfect example of a country putting in loads of efforts to fight corruption. According to a recent report from the Criminal Investigation Department of Kenya, the head of the section indicates they are targeting to present over 300 corruption cases in court this year. If the cases reach convictions, the country will repossess the stolen resources and put it into public use. Such an effort breathes hope and will undoubtedly be a huge boost in the completion of the major infrastructure projects that will give Kenya an edge globally.

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