Sub-Saharan Africa (SSA) has the best return on foreign direct investment (FDI) at 13% in 2002 compared with a global average of 7,1%, the World Bank said on Monday.
Launching the World bank’s 2003 Global Development Finance (GDF) report in Johannesburg, lead author Philip Suttle said Sub-Saharan Africa and South Africa are well poised for sustainable capital inflows as the region was more dependent on stable aid grants, worker remittances and FDI inflows, rather than volatile bank credit and bond sales, which had in part caused the crises in Asia in 1997 and in Latin America in 2002.
“Although there has been a sharp contraction in capital flows to developing countries since the equity market bubble bust in 2000, the World Bank is cautiously optimistic that this will lead to less volatile capital flows in the future. A more stable environment is good for growth and for poor people,” Suttle said.
In particular, the report highlighted the automatic stabilisers of FDI, which favour South Africa. The two factors are retained profits and depreciation of fixed capital.
The region with the highest share of FDI in the form of retained earnings is Sub-Saharan Africa at 31% compared with 21% for Mexico.
A conservative 5% depreciation rate implies FDI flows of some $68-billion as the stock of FDI in developing countries is estimated at between $1,2-trillion (World Bank estimate) and $1,5-trillion (United Nations estimate). – I-Net Bridge