LOMÉ/BOSTON – In the United Nations’ 2020 World Investment Report, Secretary-General António Guterres noted that global foreign direct investment (FDI) this year is “expected to fall sharply from 2019 levels of $1.5 trillion” to below the trough it hit during the global financial crisis. This decline will have a devastating effect on emerging economies, many of which are already in crisis as a result of the COVID-19 pandemic.
Few regions will struggle more than Africa. Not only does the continent account for just 3% of global GDP, but it currently attracts less than 3% of global FDI, which has been a critical factor in propelling other regions to prosperity.
To catalyze growth and potentially help to rid the continent of extreme poverty once and for all, African leaders must try to beat the odds and attract hundreds of billions of dollars in FDI. They should start by seeking investments from the 165 million members of the African diaspora. And they can draw inspiration from China’s meteoric rise to become the world’s second-largest FDI recipient, after the United States.
Economists and policymakers are well aware of the economic-development benefits at stake. In addition to providing emerging economies with a much-needed influx of capital, FDI is generally long term and drives local skills development and technology transfer. When international firms such as Apple or Tesla decide to build manufacturing facilities, distribution networks, retail stores, and service operations in China, for example, they provide employment, technology, and know-how to local Chinese, as well as opportunities for smaller businesses to supply large factories.
China’s path to attracting significant amounts of FDI began four decades ago, when Deng Xiaoping came to power and introduced market-based reforms. Some might assume that much of the country’s inward FDI has since come from non-Chinese investors and companies. In fact, according to Alan Smart of the University of Calgary and Jinn-yuh Hsu of National Taiwan University, Hong Kong accounted for half of the $307.6 billion in FDI that China received between 1979 and 1999, and Taiwan for roughly 8%. Overall, 77% of China’s total FDI inflows during this period came from Asia, while the US and European Union member states were responsible for just 16% combined. As one commentator has noted, “From the outset of China’s economic reform era, diaspora Chinese have provided the lion’s share of inward foreign investment.”
