Foreign Direct Investment Growth Trends in Africa and Ethiopia

Pandhigunta Surya Kumar, Tesfaye Fikadu


Foreign Direct Investment has become an important factor among developed and developing countries. FDI is a source of economic development, modernization and employment generation. All these contribute to higher economic growth. Most of the countries have adopted their respective policies for attracting more investment and skill parameter and creating base to meet the demands and expectations of foreign investors. FDI is not only a source of capital funds and foreign exchange but also acts as a dynamic and efficient vehicle to secure the much needed industrial technology, managerial expertise and marketing knowledge and export promotions. Global FDI flows are projected to $1.8 trillion in 2018; these FDI flows rose by 38 per cent to US $ 1.76 trillion in 2015, their highest level since the global economic and financial crisis of 2008-2009. The geographic pattern tilted in favour of developed economies in 2015, although developing Asia remained the largest recipient of FDI flows. Developed economies FDI flows, nearly doubled from US $ 522 billion in 2014 to US $ 962 billion rising up 84 per cent. The annual compound growth rate of Africa continent registered 12.1 per cent during the overall period 1994-2015, and statistically significant at 1 per cent respectively, in this duration in Africa continent FDI inflows were attracted averagely US $ 30.4 billion, during this corresponding period based on the coefficient of variation Southern Africa was noted highest consistency and Eastern Africa was noted highest variability. The annual compound growth rate of Ethiopia FDI inflows has registered 14.9 per cent per annum and statistically significant at 1 per cent level during the period 1995-2015. African countries were compared with countries from other parts of the world with the focus on inflation and currencies instability and political uncertainty. Another factor that is limiting the inflow of FDI to Africa is infrastructure. Exchange rate uncertainty is one of the major reasons why FDI is not increasing in Africa the way it should be.

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ISSN : 2251-1555