Foreign investment and aid in Africa: history, trends, theories, and prospects

In the era of intensified globalisation (since the 1980s until approximately 2010), foreign direct investment (FDI) was increasingly seen as a vital driver of economic development by many policy makers globally. It is meant to bring a variety of benefits, such as employment, domestic supply-chain linkages, technological spillovers, and increases in exports. However, Africa’s experience with FDI has generally been mediocre, marked by relatively low flows of inward FDI and highly limited flows of outward FDI, with some exceptions such as Mauritius and South Africa. Worse still, inward FDI in Africa, as it was in the colonial era, is often extractive in nature as it drives the off-shoring of “surplus value” (extraversion) while often doing little to generate widespread development through employment and other impacts. This chapter considers the nature, drivers and impacts of FDI on the continent. It argues that existing government policy regimes, global value chain governance, and the sectoral composition of FDI have limited the prospects for it to significantly transform economic development trajectories on the continent, in general, unless it is utilised strategically as part of an articulated industrial strategy.