Africa Keywords:, foreign direct investment, transnational corporations, capital, savings, crisis, development, modernization, technology, structural transformation

Foreign direct investment (FDI) significantly enhances the ability of African countries to create competitive production and implement structural changes in the real economy. The vast majority of FDI projects are implemented by multinational corporations (TNCs), which ensure high efficiency of their own investment decisions. However, the structural imbalance of the economy and political instability in many sub-Saharan African States (SSA) do not stimulate the activities of international corporations and deter their investment.

According to UNCTAD data, global FDI inflows increased by 17% in 2011 compared to the previous year, to $1.5 trillion, despite the crisis in the economy and finances of a number of leading countries. The average level that occurred in the pre - crisis period of 2005-2007 was exceeded. However, the peak FDI inflows recorded in 2007 ($1.9 trillion) are projected to reach only in 2013.

The record cash holdings held by TNCs, the ongoing corporate restructuring, and the gradual withdrawal of state funds from the capital of financial and non-financial companies, which was used as a support measure during the crisis, open up new investment opportunities for international corporations.

FDI TRENDS AND PROSPECTS

Assessing the financial capacity of TNCs, UNCTAD experts believe that FDI inflows to the global economy will grow at a moderate pace in 2012, reaching approximately $1.6 trillion. However, due to the macroeconomic instability associated with the growth of domestic debt in developed countries and the lack of clarity about the future of the euro, the situation in the field of FDI in 2012 may worsen compared to the expected level ¹.

The 2009-2010 decline in FDI inflows to Africa continued in 2011, although less pronounced than in previous years. The increase in FDI inflows to South Africa has not been able to compensate for their significant decline in North Africa: Egypt, Libya and Tunisia have experienced a sharp drop in foreign investor interest in the region due to socio-political instability. Central and East Africa also recorded a decline in FDI inflows. West and South Africa have managed to attract more foreign capital than in 2010. Africa's share of global FDI flows remains just 4% (see Table 1).

TNCs reasonably want security for their investments and seek to place them on the continent, primarily in politically and economically stable countries with sufficient resources (human and financial capital, new technologies) to find their niche in the globalizing economy. In this sense, the large group of SSA least developed countries-34 (they are among the 49 least developed countries in the world) - remains unattractive to international investors (with the exception of a few countries with large reserves of energy and other valuable minerals).

Many studies point to weak market forces in the least developed countries (LDCs). The traditional predominance of consumption over savings, numerous economic imbalances, underdeveloped capital markets and organized credit, weak mobility of production factors, widespread corruption and bureaucratic obstacles prevent the release of savings from the inert zones of the economy, and the transfer of potential capital to investment.²

Table 1

FDI inflows to Africa, 2003-2011 ($ billion)

* Rating.

Источник: UNCTAD. World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development. N.Y., 2006, p. 299 - 300; Non-Equity Modes of International Production and Development. Annex table 1.1, 2011, p. 187 - 188; UNCTAD. Global Investment Trends Monitor. N.Y., 24 January 2012, N 8, p. 6.

FDI inflows to the continent continued to be dominated by investment in the primary sector, especially in the oil industry. This is what led to the emergence of Ghana as one of the leading host countries along with Angola, Nigeria, South Africa, the Democratic Republic of the Congo( DRC), Zambia, and Namibia. Other countries attract significantly lower amounts, with 18 of them registering a decline in FDI inflows3 ⁱⁿ 2010.

While the continued search for access to natural resources, particularly by Asian TNCs, will help maintain FDI inflows to SSA countries, political uncertainty in North Africa is likely to lead to another challenging year for the continent as a whole in 2012.

Most of the FDI flows to Africa come from the United States and European countries, with the UK, France and Germany leading the way. American TNCs are very active in South Africa, acquiring their former branches sold during the apartheid period, investing heavily in the exploration and development of new oil and gas fields in Angola and throughout the west coast of Africa, as well as in Algeria, Nigeria, Sudan, and Mauritania.

Although TNCs from developed Countries account for the lion's share of FDI coming to Africa, a significant part of the total investment inflows in a number of countries on the continent is made up of investments from other developing countries, especially neighboring ones.

Intraregional FDI flows are increasing not only in sectors related to natural resources, but also in other sectors of the economy that host countries pay special attention to, such as manufacturing, agribusiness, telecommunications services, information technology, finance, and tourism. This is facilitated by the process of harmonization of investment agreements between the countries of the continent.

So, for example, the leading African companies in the field of tele-

MTN (South Africa), Orascom (Egypt) and Seacom (Mauritius) are actively involved in regional expansion. Major Nigerian banks are expanding their network of branches in West Africa, while Kenyan companies and banks are increasing investment in a number of manufacturing industries and in the financial sector of Tanzania.⁴

According to UNCTAD, more than 60% of all FDI in Mozambique, Botswana, Swaziland, Lesotho, Malawi, DRC is carried out by South African investors.

For South Africa, Africa is increasingly important for its overseas investment business. Historical connections, experience, knowledge of markets, savings on transport costs, as well as the prospects for capital investment that emerged in neighboring countries during privatization play a role. The South African Government's policy of strengthening regional cooperation has led South African State-owned enterprises to invest in the region, focusing on infrastructure development and supporting the African renaissance under the motto "African Renaissance" ^.5

IMPACT OF THE GLOBAL CRISIS

The global economy is still recovering from the worst recession since the Great Depression. Globally coordinated emergency monetary support programs to restore financial stability have had some positive effects.

UNCTAD experts emphasize that the current crisis has been brewing over several years of accumulating enormous imbalances in the economies of the world's leading powers. The most obvious evidence of imbalances was large current account deficits in the United States, Great Britain, Spain, and a number of Eastern European countries, on the one hand, and large and growing surpluses in China, Japan, Germany, and oil-exporting countries, on the other.

In the United States and other developed countries, pre-crisis growth was largely driven by debt-financed household consumption, which was made possible by irresponsible lending and the growth of financial bubbles in real estate markets.

During the crisis, financial turmoil spread directly to equity, bond and commodity markets and began to put pressure on the exchange rates of some emerging market economies. The same behavior of such different markets can be explained by the action of powerful speculative forces dominating fundamental economic factors.⁶

An important role in the expansion of the crisis, which determined its systemic nature, was played by the shock decline in bank revenues and the fall in the price of their share capital. The credit squeeze that followed the complete or near collapse of major financial institutions also affected the real economy, accelerating the decline in private demand and triggering a massive economic downturn that could not but negatively affect the movement of international capital.

DEVELOPMENT AND MODERNIZATION OF THE ECONOMY

African countries see FDI as an important resource for developing and modernizing their economies and overcoming the technological gap with global economic centers.

Meanwhile, the inflow of such investments is largely determined by the presence of certain advantages in recipient countries - sufficient market capacity, availability of cheap raw materials and other resources, price factors that meet the needs of highly profitable production, appropriate human capital, and improved infrastructure. Some of these favorable conditions (especially market size and price competitiveness) become even more important as a country develops economically.

During the period of economic recovery and income growth, the prospects for FDI are also improving. Until countries are sufficiently developed, FDI flows mainly to the primary sector of the economy (which is typical for LDCs) and, above all, to extractive industries. When conditions are created for greater use of FDI in the productive sector, these investments can play a significant role in achieving development goals and obtaining effective technologies and know-how through TNC channels.

Imported capital in the form of FDI supplements domestic sources of investment financing (see Table 2). It drives local productive forces. By involving additional material and labor resources in economic turnover, TNCs contribute to an absolute increase in the economic potential of host countries, create high-tech types of production (computers, electronic components, communications equipment, etc.), and saturate the markets with new products.

Attracting FDI to export-oriented industries increases the export income of host countries. At the same time, a foreign exporting company often cooperates with local companies, opening them up to the world market. FDI is very important for countries experiencing difficulties in adapting their export economy to structural changes in international trade.

It is certainly profitable for TNCs to produce in developing countries that have qualified personnel and have developed their own infrastructure.-

Table 2

Ratio of FDI inflows to gross fixed capital investment in Africa in 2006-2008 (%)

Source: UNCTAD. World Investment Report 2009. Transnational Corporations, Agricultural Production and Development. N.Y., 2009, p. 257 - 259.

It is necessary to develop a large number of physical and financial infrastructures, many types of finished products (at the expense of cheap labor) and export them to industrial centers. Objectively, this leads to the inclusion of these countries in the transnational pipeline of production and sale of goods and services, and to the inevitable strengthening of the position of TNCs in them.

Unlike capital imports in the form of loans, FDI does not create a debt problem in recipient countries, and in this respect it has a certain advantage. UNCTAD experts attach particular importance to the package of TNC branded assets that can be obtained together with FDI. First of all, they highlight technology transfer, trademarks, expertise, the ability to organize production in different countries and ensure its integration, establish marketing networks, or get preferential access to markets for non-corporate assets (for example, financial resources and equipment)^.7

TNCs can import modern technologies, some of which are not available without FDI, and help improve the efficiency of using existing technologies. They can help them adapt to local conditions, drawing on the experience gained in other countries. The influence exerted on the development process depends on the interaction of a number of factors.

The degree of trade liberalization and competition in host countries is important for economic development. Increased competition is directly related to technological modernization. Protectionism or strict restrictions on entering or leaving the local market inhibit technological modernization and lead to isolation of the national economy. Of course, the protection of new types of economic activity at the time of their formation by the state is necessary and can contribute to the process of accumulation of technological knowledge. At the same time, it is important to take into account that new sectors of the economy in the interests of development should quickly start functioning in an internationally competitive environment, which may be hindered by protectionist measures. This applies to both local companies and branches of foreign firms.

The emergence of new technologies increases competition and leads to the withdrawal of inefficient enterprises from the market, but without the introduction of innovations, the economy loses its dynamism and flexibility and eventually loses its competitiveness. However, in practice, it is quite difficult to distinguish between legitimate competition and the displacement of local businesses. If the state authorities fail to do this, they can support unprofitable local companies for a long time, which will negatively affect economic growth.

Finding the optimal balance between regulating the activities of foreign companies and creating opportunities for them to compete with local firms is an important task that all countries receiving FDI have to solve. Only a few developing Countries have managed to create a world-class innovation base while restricting the access of TNCs, which is evidence for the selective nature of such restrictive measures.

The state of technological potential and the level of training of personnel in developing countries is another factor that is associated with the possibility of an influx of foreign technology and knowledge. If efforts are not made to improve the skills of personnel and develop research capacity, it may be too expensive for TNCs to import advanced technologies and organize complex activities, as well as to invest in on-site research and development. At the same time, there is a risk that technological progress in developing countries will be somewhat hindered by the reluctance of TNCs to sacrifice technological superiority and market control.

Corporate assets of TNCs are provided with access to international markets for goods and new activities based on the use of the comparative advantages of recipient countries. The expansion of exports, in turn, allows us to gain such advantages as accumulation of technological knowledge and stimulating competition.

The personnel potential of TNCs is highly appreciated. In modern training centers, representatives of the local population working in TNK branches receive training and improve their skills. The growth of personnel qualifications, the introduction of modern forms of organization and management of production provide specific advantages to foreign and national companies, and help maintain employment in changing economic and technological conditions.⁸

* * *

Thus, the global interests of TNCs and the development goals of host States do not always coincide. African Governments, while showing a willingness to compromise with TNCs that can be explained by economic factors, at the same time seek to find mutually acceptable forms of cooperation with them and direct their potential in the direction of national interests.

¹ UNCTAD. Global Investment Trends Monitor. N.Y., 24 January 2012, N 8, p. 5.

^{Bessonov S. A.} 2 Osobennosti khozyaistvennogo mekhanizma v stranakh Tropicheskoi Afrika [Features of the economic mechanism in the countries of Tropical Africa]. Problemy ekonomicheskogo razvitiya [Problems of Economic development], Moscow, 2005, pp. 146-153.

³ UNCTAD. World Investment Report 2011. Non-Equity Modes of International Production and Development. N.Y.. 2011, p. 187 - 188.

⁴ Ibid., p. 42-44; BIKI, April 26, 2011 N 47, from 1, 5, 16; BIKI, September 15, 2011 N 105, p. 5.

⁵ UNCTAD. World Investment Report 2011.., p. 42 - 44; UNCTAD. Doc. TD/B/COM. 3/EM.26/2/ Add.5.2005. 26 October, p. 4-13; BIKI, 15 September 2011, N 105, p. 5.

⁶ UNCTAD. Trade and Development Report, 2009. New York and Geneva, 2009, pp. 7-10.

⁷ UNCTAD. World Investment Report 1999. Foreign Direct Investment and the Challenge of Development. N.Y., 1999.

⁸ Ibid., p. 40 - 43.

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