Foreign investment little help to Africa, says UN report

GENEVA - Africa has benefited little from foreign investment, viewed as the holy grail of development, and may even lose out as poor countries compete to attract overseas firms, a UN agency said today.

Foreign firms have poured billions of dollars into oil and mining in Africa but these industries have yielded few benefits to create jobs or domestic wealth, the UN Conference on Trade and Development (UNCTAD) said in a report.

Foreign direct investment (FDI) in Africa increased more than ninefold from the 1980s to 2004 to $18bn annually, driven by global demand for fuel and minerals, the agency said.

"The expectation for FDI to create growth, to create diversification, technology spillover and jobs has not really been fully realised according to expectations," UNCTAD Secretary-General Supachai Panitchpakdi told journalists.

However, benefits for anyone but the investors have been few. Many African countries have opened their doors to foreign investors, even offering incentives to such a degree that they have become a sort of subsidy to foreign corporations.

"History has a habit of repeating itself," the study said.

?In the past, foreign firms steered a development course for Africa at odds with local needs."

Ghana and Tanzania, for example, had received as little as 5 percent of the value of gold exports from a foreign-led investment boom, the study said.

The lesson also held true for the oil and gas industries, where capital remained locked in investment "enclaves" that did little to help the surrounding economies, UNCTAD said.

"The inflow of capital from FDI may be a benefit but the resulting outflow of profits may be so high as to make it a substantial cost," the report said.

"Failure to consider these costs can orient the incentive structure toward quick returns, speculative investments and short-term horizons."

Supachai said African countries needed to analyse foreign investment carefully according to costs and benefits and coordinate inflows with domestic needs, and to avoid broad policies designed to simply attract as much foreign investment as possible, whatever the type.

African states also needed to continue domestic reforms to diversify economies away from extractive industries such as mining and oil, which saw few knock-on benefits and came at a price to the environment and society, he said.