- March 30, 2022
- Posted by: Amos Ekow Coffie
- Category: Economics
The Ghana International Trade and Finance Conference (GITFIC) has recommended plausible ways to West African leaders to improve on activities that attract Foreign Direct Investment (FDI) while limiting the activities that bring about bottlenecks to host countries.
They said international trade was the source of FDI and ECOWAS must uphold the AfCFTA agenda in high esteem to promote FDI to the sub-region.
“Various governments through their national investment agencies should work towards a conducive political and business climate to improve FDI inflow to the sub-region and tern scrutiny, in terms of documentation and the type of FDI to be allowed to the sub-region, should be checked rigorously before its establishment.”
This was part of the recommendations of the GITFIC on the monthly research focused on FDI and its benefits and demerits in the West African sub-region and copied to the Ghana News Agency in Accra on Monday.
Foreign direct investment is a major driving tool for development, especially in emerging economies like West Africa.
Focusing on Nigeria, Ghana, Cote d’Ivoire, and Sierra Leone, it is realised that West Africa’s FDI has increased since the 1980s when most countries in the sub-region adopted various economic recovery programmes (ERP) and structural adjustment programmes.
This has served so many purposes that merit the sub-region in diverse ways.
Notwithstanding, the opposition to FDI has a case to argue that FDI has its negative implication which needs to be considered, and it was crucial and needful to strike a trade-off effect to ascertain the net effects of FDI on the sub-region before praising it.
The GITFIC therefore advised governments, through their national investment agencies, to be advised accordingly on the net effects of FDI into the country and how the environmental protection agencies in ECOWAS should make sure that environmental regulations in the sub-region were implemented.
“While a country’s GDP level or income level determines its rank in the global classification of whether it is experiencing a growth trajectory or not, economic development includes other determinants that aim at improving the standard of living of its citizens.
“The unbiased argument to accelerate growth to development is to monitor the trade-off between the merits and demerits of various economic indicators. This is a holistic debate that needed not be veered off by West African leaders.”
The research said about 70 per cent of West Africa’s FDI was channeled to the extractive industry yet, issues on FDI were mostly centred on other subtopics such as education, technology, and other services sectors activities that are mostly positive.
On merits of foreign direct investment, which involves the cross-border movement of capital and its related complementary elements such as technology, management, skills, the research said it had contributed to the growth of the host country in diverse ways.
Apart from stimulating economic growth, it also offered employment effects, resource transfer effects, competition effects, the balance of payment, and international trade.
In creating jobs, the research said it increased productivity; especially in value addition to products the domestic industries lack the requisite machinery and technical ability to diversify its primary nature.
It said Multinational companies employed masses in the host country, thereby reducing the unemployment rate and decreased the dependency ratio and social vices, thus, enhancing the improved standard of living.
“The resource transfer effects are not, limited to capital transfer, where multinational companies take no doubtful risk of long-term investment in alien economy and repatriate profit only when there are favourable returns.
“FDI has improved the capital flow of West Africa, where restrictions to raise global funds are almost at play given their high level of debt to gross domestic product (GDP), making it available for host economies to enjoy financial resources not available to them. To the host economies, FDI inflow in the form of capital transfer also results in “crowding in effects” where it serves as a good supplement to domestic investment; a percentage increase in FDI-inflow leads to an increase in total domestic investment.”
The research said diffusion of updated technologies into the host country’s job market was also a major contribution of FDI inflow to the host country – digitalisation of financial processes had enhanced increase in financial inclusion and simplified accounting procedures in developing economies like West Africa– a boost to the activities of the banking sector and other financial institutions, technology for discovering, extracting, improving product brand are few of the positive effects of FDI inflow to economic growth.
“One policy issue within the limelight of discussion is the contribution of the subsidiaries of multinational to the host country’s current account and capital account. There is a positive effect of FDI on a host country’s capital account when the foreign subsidiary is established in the host country. Hence, the initial capital inflow increases the capital account of the host country.”
On demerits, the research said the FDI was not always a blessing to the host country despite its numerous advantages as the host country loses national sovereignty in the sight of numerous multinationals in their economy aside from other possible trade and environmental adversaries.
“It is also worth noting that sometimes the benefits attributed to the recipient economy are only mirage if the economy is not resilient enough to tap the probable positive externalities of FDI inflow in the form of technology and skill transfer. In most cases, the developing country’s weak growth in various sectors, namely low level of education, health, barriers to trade, low level of technological advancement, weak competition in the working environment, as well as less stringent environmental regulations account for the reason why it cannot achieve full benefits of FDI inflow.
“Skeptics about FDI inflow have noted that it is not entirely true that subsidiaries of MNEs add to the existing jobs in the host country but rather take the form of already existing local firms and crowd them out of the market. In West Africa, most Lebanese Companies have substituted local firms in various industries. There is also exploitation of labour in the host country when the MNEs pay below the minimum wage rate as a result of loopholes in the developing economy of the high unemployment rate.”