·
Lack of capital sources. FDI is considered as a large inflow of capital
when Africa capital base is low. Is is actually right? Although FDI provide
fixed physical assets, profit from investment is mobile. Foreign investors can
take profit away and reinvest outside countries. Especially, in service
industry, the investment in physical infrastructures is low, the mobile
portfolio capital flows is highly important. Profits may be higher than the
initial investment value and FDI may thus contribute to capital export.
·
Lack of technology. FDI is expected as one of the methods bringing new
technology to Africa. Foreign companies will use their home technologies, then
the technologies will be transferred and adapted by local firms.
·
Lack of skills. It is the same as technology innovation. FDI is expected
to bring new skills from foreign countries, transfer those skills to local
employers and employees.
·
Employment development. FDI is seem as create job opportunities for
local people. However, job creation is seem to be domestic benefits in Africa
countries. Its means FDI in Africa will reduce people’s job opportunities in
other countries.
·
Competitive motivation. When Africa encourages FDI, the local
enterprises will face the higher level of competition. It forced the firms work
harder to survive and develop. It is also potential threats for domestic
competition. Transnational companies can be harmful host economies by
inhibiting entrepreneurship in the country. They will use their competitive
advantages such as knowledge, skills, brand image and a variety of support
services needed to beat the local competitors and prevent the emergence of
local small-scale enterprises.
Why
Africa does not attract FDI much? Even through the location of Africa, the central
world location, is one of its advantages, helps foreign investors take
transportation advantage, there is a need to take consideration when making FDI
decision in Africa. The main reasons are the Africa image does not favourable.
Thinking about Africa, people think about unstable political area, starvation,
social and help problems and economic disorder. Furthermore, there is a number
of reasons that prevent FDI into African countries including market size, lack
of policies, lack of profit opportunities, inconsistent setup, negative
perceptions, shortage of skills, labour regulations, poor infrastructure and
corruption (Consumer Unity Trust Society, 2002). It required high up-front cost
and long time preparation when starting investment in Africa. It is indicated
that extortion, bribery, and the lack of access to global markets are also some
of the factors that discourage FDI in Africa.
So
what African governments have done in order to encourage FDI? Africa countries
improved their policies and regulatory framework to attract foreign investors,
namely, incentives, investment treaties, and investment promotion. Since the
1980s, all SADC governments have comfortable regulations for foreign investors
easy to entry:
·
By relaxing the ability to
borrow locally although it implies a constraint on a country’s foreign currency
reserves,
·
Relaxation of land and mining
concession ownership,
·
By forming new kinds of partnerships
with the private sector (public private partnerships) in areas, which were
previously the responsibility of the government e.g. water distribution.
(Mwilima, 2003)
Those regulations
can be classified into three main fiscal, financial and rule or regulatory-based
(Consumer Unity Trust Society, 2001):
·
Fiscal Incentives
·
Reduced tax rates
·
Tax holidays,
·
Double tax treaties
·
Subsidies,
·
Exemptions from import duties
·
Accelerated depreciation
allowances
·
Investment and reinvestment
allowances
·
Specific deductions from gross
earnings for national income tax purposes
·
Deductions from social security
contributions
·
Financial Incentives
·
Grants
·
Loan and loan guarantees
·
Rules-based incentives
·
Modifying rules on worker’s
rights
·
Modifying environmental
standards
·
Greater protection for
intellectual property rights
Besides,
Africa countries have entered investment treaties, both bilateral investment
treaties and multilateral ones to encourage foreign investors (Consumer Unity
Trust Society, 2001) such as the Convention establishing the Multilateral
Investment Guarantee Agency (MIGA) and the Convention on the Settlement of
Investment Disputes between States and Nationals of Other States
·
Fair and equitable treatment for foreign
investors in terms of applications for investment approval and setting up their
businesses
·
Specific provisions on expropriation and
non-commercial losses and compensation for the same, and
·
Dispute or conflict settlement mechanism
Last
but not least activities which Africa country have done in order to attract FDI
is investment promotion. many African countries suffer from a negative image.
To overcome the drawback, most African countries have established investment
promotion agencies (IPA) whose role is conducting marketing activities to
attract FDI and take care of foreign firms once they operating in the
countries (Mwilima, 2003):
·
By acting as a one stop for investors to deal
with regulatory and administrative requirements, and
·
By changing or modifying investor perception
of the country by attending and organizing investor fairs and by distributing
materials.
·
Investment promotion covers a range of
activities, including investment generation, investment facilitation, aftercare
services, and policy advocacy to enhance the competitiveness of a location.
React
to the offers made by African government, in recent years, the trend of FDI in
Africa in increasing. Foreign companies are more willing to invest in Africa
such as royal Ducth Shell, Vodafone, Unilever, Nestle, etc. For example, Hans
Kuropatwa, director of Vodafone Group International state: "Private
investors rather than governments are developing mobile telecommunications in
Africa. The market is promising, as cellular services are an excellent
alternative to the overstretched fixed networks that are in place in many
countries. Vodafone places great emphasis on political stability in making
investment decisions and is currently concentrating on developing its mobile
telecoms businesses in Egypt, Uganda and South Africa." Changing
image of Africa countries, stable political situation is more stable and
potential growth opportunities have attracted foreign investment.
However,
all those intensives and actions are extremely favour to foreign investors? Foreign
investors might use their economic power to overpower the government policies
in order to get their own benefits and damage countries’ social benefits. They
are able to take advantages in the form of excessive protection, tax reduction,
investment allowances, specific provision, and employee’s right. Accidentally,
African governments threat their society.
In conclusion, FDI is significance to African economics however it
potentially contains some drawbacks. Africa’s policies might be useful in the
decade, but it might be against the economics in long-term. Thus, African
governments need to carefully look at real situations, give right decisions.