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Economic Development in Africa 2005

Rethinking the Role of Foreign Direct Investment

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Africa’s particular combination of geographical, historical and structural features has traditionally attracted Foreign Direct Investment into enclaves of export-oriented primary production with limited linkages to the rest of the economy. This situation has not changed much in recent years and has contributed to undermining a self-sustaining and dynamic investment process. This Report calls for a rethinking of the one-sided emphasis on attracting FDI and its replacement with a more balanced and more strategic approach tailored to African socio-economic conditions and development challenges.

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Some sectoral experiences with FDI in Africa

None of the discussion to date should be taken to imply that FDI should be abandoned in designing development strategies for Africa. But it does suggest that existing approaches to attracting FDI in the expectation that these will kickstart domestic capital formation and strengthen productivity performance have not been successful. As such, future efforts to harness the potential contribution of FDI require a shift in perspective to how it can better serve development goals in light of the structural constraints and resource gaps facing the region. The place to begin that discussion is probably at the sectoral level.

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