Can Africa join the investment revolution?

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The United Nations' latest report on Foreign Direct Investment global trends shows that FDI flows into Africa in 2004 stood still, exactly equalling 2003 inflows. However, there has been a seismic change elsewhere, with a massive tilt in favour of developing countries like China and a reduction of inflows to the developed world.

What does this portend? Is the global centre of gravity shifting away from the developed to the developing world? Where does Africa fit in the new scheme of things and what opportunities can it take from the new dispensation to work its way out of poverty?

African Business editor Anver Versi discusses these crucial issues as he reviews Unctad's World Investment Report 2005.

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The latest United Nations Conference on Trade and Development (Unctad) report on world investment in 2004 reveals a number of fascinating trends. It shows that slowly but steadily, the direction of Foreign Direct Investment (FDI) is tilting towards the developing world and away from the developed world. Investment targets in the developing world are also changing from primary agriculture and natural resource exploitation to manufacturing and services.

The report also highlights a trend that has been growing, almost unnoticed, over the past decade--the internationalisation (or globalisation if you prefer that term) of Research and Development (R & D).

Taken individually, each of these trends could be explained as cyclic phenomena; taken together, they appear to point to an almost inevitable shifting of the centre of gravity of world economics. If indeed the global economic tectonic plates are moving, they are doing so slowly and the full impact of this movement will not be noticeable for at least two decades. These two decades will be crucial for Africa. Here are opportunities opening up for the developing world, and indeed Africa, to finally shift gear and enter a new era of accelerated development. When the dust finally settles and the new economic superpowers emerge, Africa can, if it plays the game carefully and cunningly, find itself on the side of the winners.

However, for the present, Africa is standing still. The total FDI inflow for Africa for 2004 was exactly the same as in 2003, around $18bn. Most of the investment follows the traditional path towards the extractive industries--mining and oil. In order to put Africa's investment regime into context, it might be instructive to examine the global picture, particularly that of the developing world. 2004 saw a massive increase in FDI flows into developing countries. Total FDI inflows into developing countries chalked up a very impressive $233bn, a 40% increase on the 2003 figures.

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Thanks to this huge spike in FDI to developing countries, the global FDI figures for 2004, at $648bn, registered a 2% increase from 2003. This reflects a slight rebound from three years of declining flows. In fact, FDI to developed countries dropped by 14% in 2004 but the slack was more than made up by the increased flows to developing countries. This brings the share of developing countries in world FDI inflows to 36%, the highest level since 1997.

According to the World Investment Report 2005, the momentum is likely to carry over into 2005 and 2006, reflecting the growing economic strength of the developing world.

Although the US remains the largest recipient of FDI, followed by the UK, China is firmly established in third place. It is now easily the largest recipient of FDI in the developing world with, inflows of $61bn in 2004.

The 2005 Unctad report highlights some very interesting trends in the flow of investments in terms of origins and destinations and also in terms of the types of industries that are now attractive to investors.

For example, while most of the investment into Africa has gone into the extractive industry--mining and oil--the investment into Asia has gone into manufacturing, services and finance. Investment into Latin America and the Caribbean, traditionally concentrated on natural resources as in Africa, has also undergone a subtle change with more FDI now being directed into manufacturing and services than to commodities.

Another very interesting trend, unearthed by the Unctad report, is the internationalisation of Research and Development (R & D). Until very recently, Transnational Corporations (TNCs) jealously guarded their R & D departments and always located them in their home countries, usually in the developed world. Now, over the past decade, TNCs have been setting up major R & D facilities in developing countries in order to carry out core R & D functions.

In the opinion of some economists, these trends taken together show the beginnings of a real globalisation. The developing world is no...

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