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Economic Report on Africa 2006

Capital Flows and Development Financing in Africa

image of Economic Report on Africa 2006

Capital flows to Africa in the form of aid, remittances and foreign direct investment have increased considerably over the past four years. However, they are unevenly distributed among countries. In addition, capital flows to Africa are highly volatile and unpredictable, increasing macroeconomic uncertainty and undermining government’s ability to design and sustain long-term development plans. The 2006 edition of the Report places capital flows at the centre of the debate on development financing and examines how external capital can help countries accelerate growth and reduce poverty.

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Absorption Capacity and Management of Capital Flows

This last chapter of the report examines the capacity of African countries to absorb foreign capital and discusses policies to manage capital flows so as to maximize the benefits while minimizing the risks of financial fragility and other adverse effects. A country’s capacity to absorb foreign capital depends on many factors, including the quality of the labour force, the availability and quality of the infrastructure, the depth and efficiency of the financial system, and the overall institutional and policy environment.

English

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