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The determinants and relevance of Foreign Direct Investment (FDI) in sub-Saharan Africa countries, a Case study of Angola

Chapter 3

Data and Methodology

A survey was conducted by means of questionnaires that were completed by various estate agents in South Africa that specialise in dealing with foreign direct investors.

Explores strategies for accelerating the flow of FDI to Africa, especially the implications of NEPAD programs.

Given the importance of FDI in Africa's development, one of the areas of interests for researchers on African economies has been to explain why Africa has fallen behind other regions in attracting FDI (see, for example, Morisset, 2001; Asiedu, 2002; Reinhart and Rogoff, 2002). The most popular potential determinants of FDI found by these authors include: market size, labor costs, openness, taxes and tariffs, political instability, corruption, poor infrastructure, and inflation.

The conventional wisdom is that a large market size (or the host country's real GDP per capita) is necessary for sufficient utilization of resources and exploitation of economies of scale; thus, as the market size expands, the volume of FDI inflow will increase.

FDI are central to the success of NEPAD's long-term development strategy. The proponents of NEPAD acknowledge that resource gap exists, which must be filled by FDI. Accordingly, there are a number of key initiatives in the NEPAD development program that would increase the flow of FDI in the medium- and long-terms and propel the continent from underdevelopment to capitalist prosperity. Since sufficient data do not exist at the moment to evaluate the impact of NEPAD on FDI, this section will only assess qualitatively whether or not NEPAD programs enhance what is believed in the literature to be an attractive environment for FDI, namely:

* market size;

* labor costs;

* infrastructure quality;

* openness;

* political instability;

* corruption;

* macroeconomic instability, e.g., inflation.

Most African countries have relatively small market sizes due to their small populations and per capita incomes. A small market size deters the inflow of FDI. NEPAD seeks to enhance and strengthen regional economic integration in order to enlarge the market. In the long run, access to a large regional market should attract FDI to Africa. Also, as sectoral priority, NEPAD aims to improve productivity in agriculture, which should help increase purchasing power and therefore the market size.

Chapter 4

Data requirements

To examine how these theoretical predictions may help us to understand African investment, we need a broad range of data. We need to examine relative growth rates, market size, wage rates and costs of capital. We need information on policy stances towards FDI and towards trade, both amongst African countries and amongst African and non-African countries. We also need to know about the African companies which are investing abroad. But above all we need good FDI data on African outward FDI, to other African countries and to non-African countries, by sector and over time. As we will see in the remainder of this paper, not all data are available, and there are several difficulties with FDI data, pointed out ...
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