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New on Our Knowledge Center: The State of African Cities 2018

Published on December 19, 2018

The aim of The State of African Cities 2018: The geography of African investment report is to contribute to development policies that can turn African cities into more attractive, competitive and resilient foreign direct investment (FDI) destinations. Attracting global FDI is highly competitive and crosses various geographic scales, therefore regional cooperation by cities and nations is critical. But FDI is not a panacea since it has both positive and negative effects and careful choices need to be made by cities in their pursuit of FDI, if it is to lead to inclusive economic growth. This report aims to provide guidance on these choices and to facilitate understanding of the complexity of global investment in Africa.

In recent years, especially after the 2008/9 financial crisis, there has been a steady increase in FDI towards the Global South. This has been a welcome trend for Africa, not only because of its developmental challenges but also because of the generally limited availability and cost of domestic financing, which has persistently hampered African business. Nonetheless, despite a growing FDI influx, Africa’s share of total world FDI volume remains small, at roughly 5%. This compares poorly to the continent’s 15% share of global population and over 30% of world poverty. The current GDP per capita gap, relative to other world regions, is likely to widen if ‘business as usual’ is to continue.

There is a clear and pressing need for increasing foreign investment in Africa. Financial and policy interventions are needed that support Africa’s emerging transformations and strengthen its already unfolding shift from FDI in the primary sector (resources), towards secondary and tertiary sectors (manufacturing, services and hi-tech). Such interventions would facilitate structural economic transformation and generate higher value-added economic activities. FDI is a key resource to expedite Africa’s growth potential, since it promises to bring not only financial resources but also new technologies, knowledge and expertise. Investment promotes employment, productivity and competitiveness through entrepreneurship in investment destinations. Substantial private capital injections can, for instance, help close Africa’s huge gap in physical infrastructure, improve the quality of the built environment, and make the continent a more attractive destination for global FDI.

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