Global Private Capital Flows and Development Finance in Sub-Saharan Africa: Exemplary Performers, Lessons for Others and Strategies for Global Competitiveness in the Twenty-First Century

Abstract

Abundant global liquidity combined with improved economic policies and prospects in many SSA countries led to a surge in private capital flows, with sharp increases in all forms of private capital flows-FDI, portfolio investment, private debt flows-to SSA. As a result, in 2007 for the first time ever, private capital flows increased almost six-fold since 2000 to reach an estimated $84bn, double the amount of ODA to SSA. However, the onset of the financial crisis radically changed the picture, with a drying up and, in some cases such as South Africa, a large reversal of capital flowsThe author begins the paper with a brief historical perspective of global capital flows to Sub-Saharan Africa (SSA). He then presents the methodology employed during the research. This is followed by the review of the literature. Next, the researcher outlines the theoretical framework of the paper and his findings. He also analyzes economic strategies to attract global capital and policy implications for decision makers of SSA economies. The author ends the paper with some policy recommendations and the way forward for SSA. The purpose of this paper is to exam why some SSA economies do attract more global private capital flows than others and what lessons can be learned from the best performers. This investigation is done through the review of relevant literature, analysis of empirical research, and policy implications and recommendations in this paper.

The interaction effect of foreign capital inflows and financial development on economic welfare in sub-Saharan Africa

“…In the context of SSA's abundant natural resources, the region attracts FCF mainly due to its enhanced investment and business climate, improving macroeconomic conditions, privatization, preferred trade schemes, and reformed legal framework (Chea 2011). Furthermore, the opportunity to produce in sectors at a low cost relative to the U.S. and the E.U., low cost production for export under the African Growth and Opportunity Act (AGOA), and EU's Everything but Arms (EBA) policy make SSA an attractive destination for export-oriented investors (Mlachila and Takebe 2011).…”

Evaluating the Impact of Foreign Direct Investment on Economic Growth in Zambia;1996-2020

“…This has seen many countries including developing ones positively embracing this international FDI network (UNCTAD 2015). Experts argue that FDI brings scarce capital and technology, management and entrepreneurship skills from rich to poor countries which in the long run will accelerate growth of the host country (Chea 2011;Sy & Rakotondrazaka 2015;UNCTAD 2015). In the developing world, it is often contended that the possibilities appear endless (Olusanya 2013).…”

Effect of foreign capital inflows on domestic credit to the private sector in sub‐Saharan Africa

“…Notwithstanding how the official credit potentially affects the domestic credit of SSA economies, empirical studies on SSA exclude it as a component of FCI (Adeniyi et al. 2015; Anyawu 2012; Chea 2011; Dutta and Roy 2011; IMF 2016; Rapih 2021).…”

“…However, servicing official credit could affect the financial sector's liquidity, because a government potentially borrows from the domestic credit market to smoothen out its expenditure, crowding out the private sector. Notwithstanding how the official credit potentially affects the domestic credit of SSA economies, empirical studies on SSA exclude it as a component of FCI (Adeniyi et al 2015;Anyawu 2012;Chea 2011;Dutta and Roy 2011;IMF 2016;Rapih 2021).…”