Economic Report on Africa 2006

Capital Flows and Development Financing in Africa

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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.




African countries continue to face a perennial shortage of resources to finance public and private investment, which constrains their ability to accelerate growth. The chronic resource gap arises from imbalances between exports and imports, between resource inflows and debt payments, and between domestic savings and domestic investment (figure 1). Resource shortages limit the ability of governments on the continent to undertake public expenditure in infrastructure and social services needed to boost domestic demand, encourage private sector activity, and sustain high levels of economic growth.


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