NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, March 16, 2017

Africa has seen over two decades of rising investment, including an exponential rise in foreign direct investment that has rebounded from the 2008 global financial crisis. But this investment is not accompanied by the requisite economic and social transformation that would allow the poorest countries to provide their citizens with the same type of sustainable opportunities seen in developed countries.

Let’s first look at some numbers. Last year, for instance, Chinese capital investment in Africa surpassed USD 14 billion, an all-time high. Half of the top 10 recipients of this investment are among the 34 African countries in the so-called Least Developed Country (LDC) grouping. European foreign direct investment, too, was very strong in 2016.

So money is coming in — yet the devil is in the detail. These investments are dominated by real estate in big cities, mega-projects with few links to the broader economy, commodities for export and some middle-class services, according to a recent U. N. report.

What we’re not yet seeing is a truly transformative impact from these investments. This would mean rising rural agricultural productivity accompanied by increasingly well-paid and specialized jobs in both urban and rural areas. It also would mean industrial infrastructure and public infrastructure in local processing, manufacturing, transport, housing — the sort of thing that Europe and China financed through central and local governments during their own transformations.