Giving FDI a Human Face

Foreign direct investment (FDI) has been widely adjudged a veritable tool for international finance, private sector development and, national development. 

However, there has been relatively little emphasis placed on its role in reducing poverty and narrowing inequality in the developing economies of Africa. 

In a recent study, I and Oyebanke of Columbia University depicted a link between FDI and poverty reduction, with poverty being analysed within a multidimensional framework. 

Situated within theoretical and empirical literature on FDI, institutions and social policy in Africa, we established the importance of building the right institutions to foster inclusive growth. 

Using the specific case of the Nigerian Niger-Delta region we showed how crisis in human security and development is a consequence of the absence of efficient social development institutions.  

On the other hand, from the success story of Mauritius, we illustrate how FDI can deliver on its promises in the presence of adequate social inclusion policies and institutions.

Against the  background of the study's findings, Africa may continue to be at the periphery of FDI inflows if issues surrounding human security and social development are not considered as pivotal to both the attraction of FDI and the promotion of positive spillover effects to the host countries.

For improved social policy and equity outcomes, African countries could ensure that the five benchmark principles of equity, commitment to social protection, human resources development, gender quality and policies and institutions guiding environmental sustainability are well spelt out in investment partnership documentations.

Noting that by offering greater wages FDI unwittingly creates inequalities in the domestic economy, recipient country governments should take measures to ensure that the operations of the investing organizations contribute to both the short and long term development goals of the country, and mitigate potential communal inequities. 

More attention can be given to training low-skilled workers in order to enhance their skills and competencies and concomitantly, their earning potential. 

African governments should intervene, to minimize the risks from foreign investment, by creating improved social safety nets, skill upgrades for improved operational efficiency, alternative employment opportunities for segments of the population that may be adversely affected by the entrance of MNEs in a given sector; this is a sure way to protect the host country from exploitative economic tendencies of FDI.

Since FDI can be a driver of even development, African governments should also work with MNEs to coordinate and maximize existing initiatives that are geared towards reducing multiple deprivations such as in education, health, water, sanitation, and electricity. 

Further to this, African governments can use FDI as a way to introduce and/or redistribute capital and resources by geography and by sector.  

Africa countries should fund research investigations into the potential  social impacts of investments before they are set off, South Africa is a good example of this.  This will be a good practice for FDI to be socially inclusive.

The discussion continues...