Foreign Direct Investment, Infrastructure Development And Ease Of Doing Business In Africa

Abstract

The recent worldwide competition for Foreign Direct Investment (FDI) and African’s poor show in FDI attraction is the main motivation of this study. The study primarily investigates the impact of infrastructure development and ease of doing business on FDI in Africa. This study uses 52 African countries for the period 2010-2014. The system Generalised Method of Moments (GMM) estimation technique, a dynamic panel regression technique, is employed for this analysis because of the smaller time series dimension relative to the country size. The GMM technique also takes into effect the lag of the dependent variable. The empirical results, from the GMM estimation technique, suggest a positive relationship between infrastructure development and FDI in Africa. Also, there exist a positive relationship between ease of doing business and FDI. This indicates that a friendly business environment is essential for being competitive in FDI attraction. Narrowing down on the business environment, positive and statistically significant relationship was found for enforcing contracts, protecting minority investors’ interests and registering properties, and FDI. As recommendations for policy implementation, the study encourages African governments and policy makers to put in place the necessary infrastructure, especially ICT infrastructure, to remain competitive in attracting both market-seeking and resource-seeking foreign investments. In this regard, African leaders must put a continent-wide strategy in place to help make the entire continent competitive for international capital flows relative to others. In addition to the above, policy-makers should ensure that the legal structures support and protect minority investors as well ensure fairness in the administration of justice. A sound and business-friendly environment is, therefore, a favourable destination for foreign direct investment.