Africa Region Working Paper Series nber8 22698 1 Number 8 FOREIGN DIRECT INVE5TMENT IN AFRICA: Old Tales and New Evidence Miria A. flgato Novemner 2000 0s0h Foreign Direct Investment in Africa: Old Tales and New Evidence November 2000 Africa Region Working Paper Series No. 8 ABSTRACT The paper examines the magnitude, origins and destination of recent foreign direct investment flows to Sub-Saharan Africa, as well as changes in the sectoral composition of FDI and the relationship between economic reform and FDI. The paper aims to re-examine the "old tales" claiming that except for natural resources sector, African countries fail to attract significant FDI flows. While it is still true that much of the FDI goes into mining and oil, recent evidence and current analysis show that reforming countries in Sub-Saharan Africa are attracting significant inflows of FDI, particularly through privatization. These countries do not seem to suffer from the unfavorable image and pessimistic perceptions about the continent. However, by and large Sub-Saharan Africa is still failing to attract the kind of manufacturing investment that provides technology, skills and market access. AUTHOR'S AFFILIATION AND SPONSORSHIP Miria Pigato, AFTM2, Africa Region, The World Bank. Email: mpigato@worldbank.org. This paper is part of an initiative sponsored by the United Nations and the World Bank in an effort to help boost the image of Sub-Saharan Africa as a location attractive to foreign investors. The World Bank is contributing with a series of studies aimed at providing updated information and analysis on FDI and appropriately documenting the progress made in Africa in implementing the overall reform agenda, particularly with respect to FDI. The publication is sponsored by the Africa Region Sector Research and Development Program on International Trade and Investment managed by Larry Hinkle, AFTM3, Email: Ihinkle@worldbank.org. THE WORKING PAPER SERIES The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with potential for improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes papers at preliminary stages to stimulate timely discussion within the Region and among client countries, donors, and the policy research community. The editorial board for the Series consists of representatives from professional Families appointed by the Region's Sector Directors. Editor in charge of the series: Eugenia Marinova, AFTM3, Email: emarinova@worldbank.org The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and do not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries they represent. For additional information visit the Web site http://www.worldbank.org/afr/wps/index.htm FOREIGN DIRECT INVESTMENT IN AFRICA: OLD TALES AND NEW EVIDENCE Miria Pigato Macroeconomics 2, Africa Region, The World Bank Email: mpigato(worldbank.org November 2000 Special thanks to Maura Liberatori for the preparation of the database and of tables and graphs. Comments by Lawrence Hinkle, Mustapha Nabli, Kim Murrell, Marco Committeri, Jacques Morisset and Peter Miovic are gratefully acknowledged. Table of Contents EXECUTIVE SUMMARY AND MAIN CONCLUSIONS ......... ..............................3 Summary of Findings ................................. 4 I RECENT FDI TRENDS ........................................ 5 Soujrce and destination of FDI Flows ........................................6 Souirce of FDI ..................................7 II IMPACT OF FDI ON DEVELOPMENT ...............................7 III EVIDENCE OF POLICY REFORMS ..9 IV PRIVATIZING AND REFORMNG COUNTRIES ATIRACT MORE FDI . .13 SS.A leads in foreign exchange earnings through privatization .13 The distribution of FDI in SSA is changing .................................... 15 Soujth Afiica has emerged as a strong pole of attraction for foreign investors .15 A number of reforming countries have attracted significant flows of FDI .16 V SECTORAL PATTERN OF FDI ................................................. ... 20 Data on sectoral FDI are weak ., 20 Resource rich/policy poor countries continue to attract FDI ,. 20 FDI flows to manufacturing sector remain small . 21 Infrastructure receives largest share ................................. 22 POLICY CONCLUSIONS .................................. 22 Annex A ................................. 24 References ................................. 34 Foreign Direct Investment in Africa Old tales and new evidence EXECUTIVE SUMMARY AND MAIN CONCLUSIONS After a decade of stagnation, real growth in Sub-Saharan Africa (SSA)l accelerated to 4.5% per annum in 1995-98. The resumption of growth has been accompanied by progress in political and macroeconomic stability, as well as in the implementation of structural reforms (Madavo & Sarbib, 1999) all conditions for attracting foreign direct investment (FDI). Until the mid-1990s, SSA received only a small share of FDI, relative to other developing regions, despite the fact that returns on capital were reportedly higher. Some studies suggest (UNCTAD, 1998, 1999, Collier 1999) that this outcome is in part due to negative perceptions about the African continent as a location for FDI. This negative image is reflected in poor scores on policy and financial risk rating assessments - measures utilized to some degree by foreign investors in evaluating investment decisions and hence a contributing factor to low levels of investment. In an effort to help boost SSA's image as an investment location, the United Nations and the World Bank are sponsoring an awareness initiative. The World Bank is contributing a series of papers aimed at providing updated information and analysis on FDI and at documenting Africa's progress in implementing the overall reform agenda particularly with respect to FDI. This paper will examine the magnitude, origin and destination of recent FDI flows to SSA, changes in the sectoral composition of FDI and the relationship between economic reform and FDI flows. The analysis focuses on the last ten years, with particular emphasis on the most recent period 1995-98, which, for many African countries, represents a return to political and economic stability. It should be noted that the quality of FDI data is poor because of inadequate national statistics and under-reporting. Nonetheless, the analysis is based on several independent sources providing a degree of confidence about the veracity of recent trends. Through a systematic and comprehensive analysis of existing and new evidence the paper aims at reviewing 'old tales' claiming that African countries are unable to attract significant flows of FDI, except in natural resources sectors. The paper is constructed as follows: The summary of conclusions below will be followed by Section I (Recent EDI Trends) which concludes that SSA's share of FDI is increasing substantially; Section II (Impact of FDI on Development) which argues that historically the impact of FDI in SSA has been minimal and to be effective needs to be accompanied by good policies, Section III (Evidence of Policy Reforms) which concludes that while there has been some reform, relative to other regions Africa is still lagging; Section IV (FDI and the Privatizing and Reforming Countries) which describes how these have been catalytic in attracting FDI and South Africa in particular is mentioned; and Section V (Sectoral Pattern of FDI) which describes how the primary sector is still attracting a disproportionate amount of FDI. The paper finishes with conclusions. See E. Hernandez-Cata (1999). 3 Summary of Findings SSA's share of FDI flows increased substantially in 1995-98. Globalization, liberalization and privatization have spurred the global growth of FDI in recent years and increased FDI flows to many low and middle income countries. FDI to SSA rose significantly after the mid-1990. Although still relatively low, SSA's share of FDI flows reached 4% of total flows to low and middle income countries during 1995-98. FDI as a share of SSA's GNP has tripled in a decade and is now higher than that of the South Asia and the Middle East and North Africa regions (See Section I). This new important evidence contradicts the old view that Africa is unable to attract significant investment flows from abroad. The continuation of this trend depends in good part on the continued growth of global IFDI. However, SSA countries can build on the trend of the past few years by continuing to implement good policies such as privatization and macroeconomic reform. FDI is not inherently virtuous - its impact depends on the overall incentive and capability structure of the host country. FDI does not require host countries to maintain good policies. In fact, 41% of average inflows to SSA countries in 1995-98 and 33% of the increase in FDI between 1995-98 and 1987-90 went to four2 oil exporting countries - Angola, the Republic of Congo, Equatorial Guinea and Nigeria- which have some of the worst policies and financial risk ratings in SSA. In these countries the benefits from FDI have not been shared with their populations which remain largely affected by poverty and low human development. On the other hand, there are examples in SSA of positive outcomes derived from the presence of international firms in natural resources sectors. For example, Botswana, a long term recipient of EDI in the diamond sector has managed to incorporate FDI into its development strategies (See sections II and V). Policies have included promoting competitive markets, open trade and investment policies and reinvesting revenues from the taxation of international firms into infrastructural and social projects. In SSA, as elsewhere, host country policies, particularly in the area of competition, represent the crucial determinant for a beneficial impact of FDI. Evidence of widespread policy reform is modest. A number of countries that have stabilized and reformed their economies during the last ten years are experiencing higher growth and lower inflation than the rest of SSA and a resumption in private investment (which, however, remains low by international standards). Sound policies and a better investment climate are reflected in a modest improvement in some of the indices measuring policy and financial risk (see section III). While important, the improvements are not as marked as in other regions thus, leaving SSA with the poorest ratings among developing regions. Moreover, liberalization and privatization have been associated, in most countries, with a rise in corruption. This phenomenon is typical of most transition economies where the private sector is small and market enforcement mechanisms are weak3. The challenge for African Governments remains enormous. In order to improve economic efficiency and national welfare, a potential outcome of privatization and 2 Gabon also belongs to the oil exporting group but no comparable data on FDI are available for it 3 It may also reflect the fact that the liberalization process makes corruption more transparent, increasing the perception of a rise in corruption. 4 liberalization, they need to build institutions for improving governance and for dealing with corruption, as well as to strengthen the institutional base of the private sector. Privatizing and Reforming Countries are Attracting FDL Foreign exchange raised through privatization (i.e. FDI and portfolio flows) represented a higher proportion of privatization revenues in SSA than in other developing regions during the 1990s. Contrary to the early 1990s, when many uneconomic loss making enterprises were sold off, in recent years privatization has involved potentially profitable public infrastructure, particularly telecommunications (in South Africa, Ghana, Senegal etc.). Reforming countries are attracting large inflows of FDI (both in absolute and relative terms), particularly when compared to the early 1990s. South Africa is becoming a strong growth pole for the region and is attracting the largest inflows of FDI. It is also becoming one of the major sources of funds for many neighboring countries. Privatization of infrastructures presents many potential benefits and challenges. Experience suggests that it is a catalyst for additional flows of FDI in other sectors. However, for this to happen, appropriate institutional arrangements and regulatory frameworks safeguarding competition must be developed. Providing investors with a clear and predictable environment and protecting consumers from misuse of monopoly power is an important challenge for many SSA countries. The sectoral pattern of FDI to SSA has not changed significantly. So far SSA has failed to attract a pattern of resource flows that would lead to a competitive upgrading of the productive or export structure. The only significant exception is South Africa, where about 40%Wo of inflows during 1994-1997 have gone to the manufacturing sector. Even countries that have reformed their economies are still attracting the largest proportion of FDI to the primary sector or to infrastructure, particularly telecommunications. It is possible that this is just a phase. For example, Yeats (1998) shows that over the period 1993-96 the exports of reforming African countries grew faster than world trade with manufactures the most dynamic component of all non petroleum exports. Foreign investors might be attracted in the near future to the expanding export sector. But it is also likely that many countries will first have to significantly improve the general investment and business environment. For example, in Uganda, investors' main concerns are the poor quality of physical infrastructure, the lack of a skilled labor force, the level of corruption and the weak financial system.4 FDI can contribute to building some capabilities, but cannot be expected to upgrade the basic structure within which they have to operate. Besides stable macro-economic regimes - which many countries have now achieved- to attract FDI in the manufacturing sector Africa needs to improve market structures, lower transaction costs and improve skills and capabilities of the labor force. I RECENT FDI TRENDs The recent growth of FDI in SSA is truly remarkable considering that until very recently foreign capital was regarded with suspicion and deterred by many regulations. The socialist development strategy adopted by many post-independence SSA countries nationalized foreign companies and created state-owned industrial sectors. Foreign equity participation remained low throughout the 1970s and 1980s and was confined to import substituting industries (in countries with a sizable domestic market) and to natural 4 See Consorzio Italiano Consulenti, 'Uganda: Survey of Foreign Investors', CIC, Bologna, 1999. 5 resource sectors (mineral extraction and agricultural exports). Within the latter, foreign investment often took the form of management, patent and technology licensing agreements or production sharing contracts. SSA's reputation as an unattractive location for competitive production was reinforced by perceived political and economic risk, a low-skilled labor force, weaknesses in infrastructure and distance from export markets. The debt crisis of the 1980s forced many countries in SSA to embark on stabilization programs and to initiate trade and other structural reforms. The reduction of trade protection squeezed profitability in import substituting industries, local demand declined and many manufacturing foreign subsidiaries operating in previously protected market were hurt and divested (Bennell, 1997). Source and destination of FDI Flows Globalization, liberalization and privatization have spurred the growth of foreign direct investment (FDI) in recent years. Balance of payment data suggest that between 1987-90 and 1995-98 average annual FDI flows to low and middle income countries increased from about $17 bn to $138 bn. (i.e. from 10% to 31% of world FDI). The ratio of FDI to GDP increased from 0.5% to 2.2%. Despite the recent financial crisis, East Asia continues to attract the highest share of FDI, both relative to other regions and with respect to GDP. Latin America receives the second largest share, followed by Europe and Central Asia. SSA's share of total FDI to low and middle income countries declined from 8.1% in 1987-90 to 3.1% in 1991-94 while the ratio of FDI to GDP remained approximately constant. However, in 1995-98 SSA's share of FDI to low and middle income countries increased to 4%, while the ratio of FDI to GDP tripled and is now close to that of Europe and Central Asia. ! S ... . .... . .. . E .ER i. iER iER iED,y!gESiD7y-j id ffg S2Sig;girr: PifE .d j iSEEEE ,4d .E ESi E iENgEdg0X0Fi~~~~. . . . . . . . . . . . . . . . . . ~~~~~~~~~~~~~~~~~~~~~~.. ...... , . .. . .. f. . . fi;|f,W fffX;;$ ..... .,; Tc -qualGty of nformaton - on FDI in Aica is poor because of nadeuate ntonal statstics and under.1 rpring AF irst sorc o jf. infraion is th ntrtina Moetaxyi Fun (IMF i .i A, ich, r,eport dat ....I... se ~~~~~~~~.. . ... ...... i?.. .......... ..... ........ ..... ,. iEFi .j j.! ; enre ipien onlyblne fpyet aconts ept e fot to NMpro t h ..qualit . of nfomato many countries still recore only some rcomponentsofDI (equity capital reivested earnigs ana inter- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~....... ... .... ... . , d rE~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I :. .. _ r.E LLEi : i S i. . S E i L ...EsREi.......... .......... compan loan) and ven nt consstentya ovrtie scn suc of.. i.omto is..... fr. the... ........... of adnce inesinrg-counres. The- O I prvie georp a deal on ouflw fo alOECD countriles to all regions, including SSA. Althoughcthis sourc cvers :maj1or investin countries,: data arei not comwrehensive :as fnon OUEC investors are -exuded. Nevertees yaeotnhge hntedt e by ho u ies. itoi S i in t a t h iia da se- o the World B , whic- pr s dels .onte foeignexe on p a t ransactions and thie lForeign Investmn Promotion Agencies exitn inmfrca. Data fo these -agencies ar bed on "aproved" rahr hn cua rjectsa d tpclyoe-estimte infows ofEDrI.- Table 1 - FDI Indicators 1987-1998 FD1 Inflows (perbod average and percent share) FDIIGDP (percent) 1987-90 1991-94 1995-98 1987-90 1991-94 1995-9S 1987-90 1991-94 1995-98 World 175487 197646 440376 As % shares of world 0.9 0.8 1.5 High income 157525 139444 301829 89.8 70.6 68.5 1.0 0.7 1.3 Low and middle income 17962 58202 138547 10.2 29.4 31.5 0.5 1.2 2.2 as %/ shares of low-middle Inc. LatinAm Oerica Caribbean 7516 17535 51861 41.8 30.1 37.4 0.8 1.3 2.7 South Asia 471 956 3794 2.6 1.6 2.7 0.1 0.2 0.7 East Asia Pacific 7379 29673 55892 41.1 51.0 40.3 0.9 2.5 3.0 Middle East North Africa 1250 3841 4887 7.0 6.6 3.5 .. 0.9 1.0 Europe Central Asia 362 4808 20334 2.0 8.3 14.7 0.0 0.5 1.9 Sub-Saharan Africa 1455 1807 5513 8.1 3.1 4.0 0.5 0.6 1.8 Source: World Bank, IMF 6 Source of FDI Data on net investment flows of OECD countries confirm the positive trends during the last 10 years that were identified with lMF-balance of payments data. As a ratio to total OECD investments, those addressed to SSA countries increased from 0.6% in 1987-90 to 0.82% in 1991-94 and 1.15% in 1995-96. The share of SSA in OECD outflows received by non OECD countries increased from 3.0% to 3.4% and to 5.2% during the three periods respectively. A few cotntries - the U.K., France, the U.S., Japan, the Netherlands and Germany - continue to account for about 90% of total FDI flows although there have been some changes within periods and countries. In the 1990s new investment has flowed to South Africa in particular with the ending of apartheid and to the CFA countries after the 1994 devaluation. The U.K. remains the largest investor. SSA received about 14% of British outflows to non- OECD countries during 1995-96 (a decline from 18% in 1987-90). U.S. outflows to SSA represented 1.9% of American flows to non OECD countries, up from the negative outflows during the late 1980s. Other countries are becoming important sources of funds. SSA received in 1995-96 8.5% and 8.2% of non OECD outflows from the Netherlands and Switzerland outflows to non OECD countries respectively, a share twice as large what they received in the late 80s. 1I IMPACT OF FDI ON DEVELOPMENT The overall impact of FDI by multinational corporations (MNCs) is not easy to assess, because of the paucity of data, the difficulty in controlling for exogenous factors and conceptual problems in defining strategic counterfactuals - what would have happened if the foreign investment had not taken place. International experience shows that the impact of MNC investments depends on the overall incentive and capability structures within which such investments are made. Maximizing the benefits of FDI requires a stable macro-economic regime, export-oriented trade strategies, liberal internal competition policies and relatively open policies to international flows of services and knowledge. The capability structures that enhance investment efficiency are those that provide high quality skills, a supplier network that permits specialization and competitive costs, and a suitable physical, scientific and institutional infrastructure (Moran (1998), Lall (1999)). While the growth or welfare effect of FDI is difficult to calculate (see Box 2), many studies of SSA economies point to its limited or even negative impact. Cockcroft and Riddell (1991) suggest that during the 1980s the contribution of FDI to production was low in most African countries. In studies of countries such as Cote d'Ivoire (Mansini et aL, 1979) or Nigeria (Onimode et al, 1983) where FDI were directed to import substituting firms, the value of imports was calculated to be greater than the value added produced. This type of FDI gave rise to a twofold foreign exchange cost in terms of outflows of investment income and the cost of imported inputs. Other studies show that FDI in Africa has made a modest contribution in terms of direct employment generation (Nzomo, 1971), or in developing management skills (Cambell, 1983, Kim, 1985). However, it is worth noting that most of these studies were undertaken during the 1970s and 1980s, when policies where highly distortionary. In Africa, like in many other countries, the negative impact of FDI derived primarily from lack of competition and from a distort regulatory and incentive framework (see Box 2). 7 Box 2 How does FDI contribute to development? Thnpxica stuies f te .imact......on. eveopment are concerned wi`eite the overal :efect (on growh r e we:lfar)o wit seifi aspcts otheTDFI imatonemupoyment tehloy tradendswo on.Econometric alysis exapl, cos-conty rgrssinsforth period 1970-89 (Borenszi etA a,i 99S) show thta ecetg p ainti rise inFI: inreasedA domesi invetentm indveloping M onre Yu 0.-i pret; adaneprcetg poin risel in te rai f ~FDI to GDPincresd theratebofp:eri= capita incmegrwt of the hos cutly y 0. prcnttoo: Waciarg (1998) esimanted that ane peren increas~e in te FDI/GDP mtfio wa associated ~wnth a iceeinGDP per capia f 0.3-0.4 percnt By contrast, anlss of th'e net socilwelar efetf FIX oftenlaI o lthe opposite conclusIon aI and Streete (1 977.) found hat a substantal poto ffri~ netets in sa11ple ~devlpn coerin abuv,QXpoecsoe eido 15 years. e fnds tat a larg prop rtan(pt 5)hdngtv cowear imliadin onte otcon . MNC] stcan behrms-he t... yengage in, prcies luie iax evasonw b trnfe riig)Trdatr beaio gant oa coptto, benefit frm- onpliti o Se yWrisngenO baes codou-oesi nterneus ieiaeut teto toptnillclsples rfi oepotte vesebu fomth lc o. .o.t. ieeso.intan unt kt in.the.hostbe untx and fo diso sion in th domestic..incentive.framework. Employment and training Direct employment generation by MNCs depends on several factors: the nature of............the inetmn .. .re..l...b on etre,o egr adaqiiins(&s;tae n nutil oiis n th ao aktinstttoso h otcuty Emlyet eeain fPIisnral hihr renfil domestic policies tend to generate more sustainable growth, place less barriers to the entry of new fnairms andt encofurageOl loo Uew Vbo eter neUtpe of emlyet adweeifomto n o potniisi rasaetaM cesbe thegeerl duatin evl s ighan te abr mrkt.ffcin....s.re.iel tooivestmor inlriiig f th Tecnoce. Tcholgytrasfr s ne f hemot ipotat bneit o FD Hweer th..d..yng....ton quetioed lieeas.un~fin. (Eos,t98)~citiiz dg MCs fo hring develop: ta&ing curiesto uhdb i6hniolc."SAl nAabl.Dvopn countrdIes ay ot eo te frotier of innvai onadsdr _ot levnabet and rcgaInizationalh stuprut-urstb rges toFsertetehooIedns they imot. mi tbLv~ 0 % Wjle countries' ex ort metitiomenessicn manyays: tby iin fflatsprvlee acestotefwo gods, sevie beyon the cpbility ieooarly supirstrthyne highos:0l C0COD setidars of qulty,rliaiiaaddlvr aeso hav sccede mst he dmesiccaabiite wereM dlberateyimprovej b trete govesprnmn action. ,: Source LaN (1999) ~ ~ ~ ~ ~ ~ ~ ... ..... 8 :n m EVIDENCE OF POLiCY REFORMS The political and social instability that has historically plagued SSA is often given as one of the main reasons for the historically low level of investment (both private domestic and foreign). Collier and Gunning (1999) suggest that risk considerations are more important in SSA because of its lack of finance and asymmetric information and the virtual absence of second hand capital markets which make investment commitments nearly irreversible. On the other hand, there is evidence that high risk is compensated by high returns on investment: the return on investments made by U.S. companies ranged from 17 % to 35 % in 1995 (UNCTAD, 1999); net income from U.K. direct investment in the region increased by 60 % from 1989 to 1995 (Bennell, 1997); and the rate of return from African affiliates of US companies was considerably higher than the average for other country affiliates - both developed and developing during the same period). In recent years a number of countries in Africa have achieved peace and macroeconomic stability. They have successfully reformed their economies and have also improved their national policy and incentive frameworks for FDI (see UNCTAD, 1999). Political stability has returned in South Africa, Mozambique, Namibia and Uganda, though other countries in central Africa have experienced conflict. The following section describes the indices used to measure changes in political and financial risk and how they have evolved to reflect recent political changes. The World Bank's Country Policy and Institutional Assessment (CPIA) assesses the quality of countries' present policies and institutional frameworks as seen by World Bank 5 country economists . Ratings range from 1 (unsatisfactory for an extended period) to six (good for an extended period). The CPIA shows that Africa's rating have marginally improved since 1997 but remain the worst compared with other developing country regions. Only three countries in 1999, four countries in 1998 and one in 1997 reached a rating above 4 (indicating good policies). The International Country Risk Guide Index fICRG) is another measure of political risk and reflects the opinion of banks, multinational companies and other institutional investors. The index uses a 0-100 scale, with higher scores indicating less corruption, sounder political and judicial institutions and lower political risk. Table A7 shows that SSA countries have significantly improved their overall score since 1991 and Namibia, South Africa and Botswana are the SSA countries with the lowest political risk during 1995-98 Table A7 also shows two of the 13 components that construct the index: the first measures the degree to which business transactions involve corruption6; the second measures the 'rule of law', the degree to which the citizens of a country are willing 'to grant to the established institutions the authority to make and implement laws and adjudicate disputes'. Table A 7 suggests that SSA as a region has significantly improved its score in the 'rule of law' index and fares well relative to Latin America and South 5 The overall rating (which is available from 1997) is a weighted stun of 20 elements, whichi can be grouped into four major categories: economic management; structural policies; policies for social inclusion; and public sector management and institutions. 6 Lower scores of the corruption index indicates that "high-ranking government officials are likely to demand special payments" and "illegal payments are generally expected throughout lower levels of government in the form of bribes connected with import and export licenses, exchange controls, tax assessment, policy protection or loans" (see Knack and Keefer, 1995). 9 Asia, on the other hand, corruption is endemic in some SSA countries, particularly where it is associated with rent seeking7 behavior from the exploitation of oil and other natural resources. Only four countries report a rating above 60. South Africa8 obtained the highest rating of 75 (out of 100) during 1995-98, a score lower than that obtained in previous periods, however. The large public sectors in many SSA countries (as elsewhere in the world) have been a major source of clienteles and political corruption (Tanzi, 1998). It is often claimed that liberalization and privatization would lead to a better reallocation of resources and a reduction in corruption. In many SSA countries however, as in many transition economies (Kaufmann and Siegelbaum, 1996), corruption has been on the rise where liberalization and privatization have occurred. One reason is that insiders (often high public officials) have exploited their access to privileged information for private gain. It is also possible that the process of liberalization simply makes corruption more transparent, increasing the perception of corruption. Whatever the reason, table A7 shows how corruption has risen in most countries in 1995-98, compared to the early 1990s. Graph 1 shows that it has increased in the countries defined as 'best performers' (see Section IV). These countries, which in recent years have liberalized their economies and attracted large flows of FDI, have consistently lower ratings (indicating more corruption) in 1995-98, relative to 1991-94. 7 Rent seeking behavior is defined as the effort to acquire access to or control over opportunities for earning rents (earnings in excess of all relevant costs). Some of these efforts can be legal, though in many cases they are associated with corruption, i.e. the misuse of public power for private gain. (Coolidge and Ackerman, 1996). 8 The ranking of South Africa in the ICRG corruption index is consistent with the ranking by Transparency International. Transparency International data refer to perceptions of corruption ranging from 10 (highly clean) to 0 (highly corrupt). In 1998 South Africa's value was 5.20. Two African countries scored better- Botswana (6.10) and Namibia (5.3). 10 Graph 1: Best Performers: Index of Corruption 9 0 aligher values = less corruption) South Africa 70 Mozambique *Namibia 60 Tanzania 50 Senegal * Zambia Boatswana /*Ghana Cote d'lvoire 40 Z 1991-1994 Institutional Investor is the last rating reported in Table A7. It is a measure of a country's creditworthiness which is mostly determined by economic variables.9 Graph 2 compares SSA with other developing country regions and shows that SSA has been steadily improving since 1991. Nonetheless, the scores while improved, SSA still maintains the lowest creditworthiness in the world. For example, Uganda and Mozambique have seen big improvements over the past 10 years, but a tripling to 17.2 for the former and a doubling to 14.8 for the latter still leave them with extremely low scores considering that 100 indicates an absence of risk. With 50.4 and 50.2 respectively - Mauritius and Botswana represent the opposite end of the spectrum - and are associated with the lowest financial risk. Graph 3 shows how the financial and political risk ratings for SSA have improved, in a similar manner, since 1991. Overall, it would appear that SSA continues to be viewed as a risky investment location despite reform. Both the CPIA and ICRG political risk indices have improved but it is difficult to determine whether these ratings correctly reflect policy changes in SSA. This would require more statistical and econometric analysis. The financial risk index is determined primarily by economic variables and not policy events. The slow pace of improvement may simply reflect the fact that structural and economic variables change less quickly than political variables. It is also questionable whether risk is a serious deterrent to foreign direct investment. Econometric analysis (Jaspersen et al., 1998, Collier and Dollar, 1999) find that risk ratings have an important influence on private investment and FDI. Survey evidence from Eastern Africa suggests a certain indifference of foreign investors to the higher risks associated with operating a business. Only less than 300/o of foreign investors indicated the existence of a "risk adjustment factor", i.e. a 9The information for constructing the index is provided by 75-100 leading international banks who grade each country on a scale 0-100, with 100 representing the least chance of default. Individual responses are weighted using a formula that gives more importance to responses from banks with greater worldwide exposure. -aque et al. (1998) show that this index is determined priniarily by economic events and not political variables. 1I premium required to invest in a risky environment. Most of these investors were newly established (for the already established investors non economic factors have a more substantial bearing in the decision to establish a business in East Africa (see Economisti Associati, 1994). Graph 2 Financial Risk Institutional Investors Ratings, by region SOTAI ,4-ESAI A, E_C A LAC + SSAFRICAi 40 - = 35 v <2't_j S 30 _>> w*--s, 25 w w____ 20 15 I O ______ ___w~~~~~~~~. ......... ..... . .. _. ov__*_vsoo_-_@__~v**^j^^^X_ .......... .......... ....... .. ............. . ....... ............ ............ ____..__ _. 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Graph 3 Political Risk (ICRG) and Financial Risk Investors Ratings) for SS Africa 501 - - - -'' -'- -- ...........{e e sf_ >> e .wsst_w w 2,4 ~-~-u- Political Risk + Financial Risk (right-hand scale) 22 20 10~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 198 90 90 10 90 10 19 91 19 93 19 139 199 29_ 50 / r -12 40- 1 35' ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~12 1984 1985 1986 1 98 7 1988 1969 1990 4991 1992 1993 1994 1995 1997 iss7 12 IV PRIVATIZING AND REFORMING COUNTRIES ATTRACT MORE FDI SSA leads in foreign exchange earnings through privatization Privatization can be a very important instrument for improving the allocation of resources and stimulating private sector development. One successful example of privatization is reported in Box 3 - which describes how a loss making public enterprise, Tanzania Breweries Limited, has been transformed, through privatization, into a profitable and growing company. Privatization not only attracts FDI through the direct sell-off of enterprises, it also signals an improvement in the investment climate because of reduced government intervention. Estimates from Sader (1995) show that privatization initiatives are an important determinant of foreign investment decisions in developing countries.10 Box 3 Tanzania Breweries Tanzania Breweries Limited, a 100% publicly owned enterpnrse since 1919. was. privatized in 1992. At the tim.e, the company:wassuffering heavy losses and was plagued'by mssive over employment, pilferage and thiefts. roduct'qualit.ywasjlow:becauseof .low qualit of raw materials, due to inadequate availability of foreign ex e iy itifected w-'aer;i aequate cleaning and.sterilizing s_ytems d v e contamination-bacteria; and extremely high ratios of ai* inithe beer. With production declining and demand growing,, the company had just 40% of the market for beer. Th e OT',s -1992. d.cision- to'.p'ivatie tarastatal sector opened the door to interested. foign paers. In 1993 a ,South 'African based Cbompay -mi IMDL BY, a,:ubsidiary:bf o S fc ew'ie i' bought 50% of the shares in the Company for US 22.5 milion. Additonly, NDOL:- BY:took responesbility for managing the Company and constructed a new brew in Mwanza, which caine into operation by October 1995. While it has ben.provided with some degree of trade protection (tariff rates on impotd beer have.. averaged 25%) ihepivatized company has succeeded in engieering a tremendous turnaround in ormace output increased from 42 million cases in 1993 -to '12 ion=cases in 1998, plant capacity,utilization rose from 40.3% in 1993 to 82.8%'inh 1998,;' ,e,,mployee remuneration and finge benefits grew; and product qulity improved, Retrenchmeint was unavoidable (about, 1000 employees were laid'of-f'Oernigt in 1992), as e'' bjreweries.was ,rossly over-manned. Therdtio.ofoutputper employee i ncreased nticy from,181annualhetoi.ter so.f beer/employee in 1993 t"1'090 in1999 In 1998 th cop any was lidon t e Dar es.:SmSt Exhge.and nonas have. purchased a 10% equity staike. Inaddition, TBL now owns 100% of Tanzania-DistilleriesgLimited and 60% of Darbrew. .By 1998 the company could claim 82%/O of the minket for beer in Tanzania; Foreign exchange raised through privatization (in the form of both FDI and portfolio flows) represented about 47% of total revenue generated by privatization in developing countries during 1990-98 (up from only 8% in 1980). In SSA the foreign exchange contribution to privatization revenue was 58% in the 1990-98 period (see Table A8). In 1997, foreign exchange represented 84% of privatization revenue in SSA compared with only 43% in developing countries. Partial information suggests that while in other regions, notably East Asia, only 50% of this foreign exchange is in the form of FDI, the proportion is much higher- around 80-90%, in SSA. This reflects both a success of privatization programs and the fact that the domestic private sector is smaller in SSA then in other developing countries; foreign participation would therefore tend to be higher. '0 Sader considers a cross section of 36 countries for the period 1988-93 and estimates the deterninants of FDI flows (after subtracting FDI from privatization). The size of the privatization program was found to be an important element in the decision to invest. Each dollar in privatization investment generated an additional 88 cents in new investment independently of the actual privatization transaction. 13 Table 2 SS Africa: Sectoral Composition of privatization Revenues, 1988-1998 (US$ million) 1988-1993 1994-1997 1998 Total Infrastructure 10 2040 404 2454 Telecommunications 0 1850 84 1934 Power .. 65 Manufacturing 102 72 246 420 Steel .. 0 Chemicals 0 Construction/cement 48 Other manufacturing 198 Primary sector 599 1339 616 2554 Petroleum (note: oil+gas) 533 18 551 Mining 8 876 515 1399 Financial services 80 158 55 293 Banking .. .. 24 Other Services + Other 1529 310 36 1875 Total 2391 4233 1357 7734 Source: World Bank Privatization Database Table 2 shows how the sectoral distribution of privatization revenue in SSA has changed since the late 1980s. In the earlier period privatization concerned mostly " small and medium size enterprises, most of which were loss making. The institutional environment in most countries was weak, structural adjustment was ongoing and capital markets were non-existent. Since the mid-1990s privatization is more widely accepted, while information flows and capital markets have improved. The round of privatization during 1994-97 has involved large enterprises, particularly utility industries: power, railways, electricity, water and especially telecommunications. Foreign investors with the necessary capital and technical skills have been attracted by large equity stakes and management control. For example, in the case of Ghana Telecom12 a 30% equity stake was sold to a consortium led by Malaysian Telecom. Similarly, 30% of South African Telkom was sold to a consortium formed by Malaysia Telecom and SBC International of the U.S. in 1997. As already discussed, privatization has been associated with an increase in corruption. As in many transition economies, there are many obstacles to reaching the benefits of privatization, improved efficiency and alignment of private and social gains. This would require choosing methods of privatization that align control and cash rights, building the institutional base for the private sector (including bankruptcy procedures, a functioning judiciary and efficient financial institutions), enhancing competition at all levels and creating institutions that deal with corruption (Nabli, 1999). " With the exception of a large transaction (i.e. US$ 500) in the petroleum sector which occurred in 1992 with the sale of Nigeria NNPC oil field to Elf Aquitane. 12 See J. L. Sarbib (1997), "Privatization in Africa: Present and Future Trends", Speech at the ADB 1997 Annual Meeting Symposium in Abidjan. 14 Privatization of utilities, particularly of infrastructures, may improve the economic environment by reducing transactions costs and infrastructural bottlenecks. However, for these benefits to be realized, there is a need for a competitive framework and effective regulations (particularly in the case of natural monopolies). Developing the necessary institutional arrangements and appropriate regulatory framework for utilities and infrastructures represents an immense challenge for many African countries. The distribution of FDI in SSA is changing. Graph 4 shows the distribution of FDI in SSA for the period 1995- 98, and 1987-90 for four groupings of SSA countries. Four fuel exporting countries (Angola, Congo Republic, Equatorial Guinea and Nigeria) account for WA 41% of total FDI inflows during 1995-98, down from 61% during 1987-90's. South Africa has increased its share to 28% while a group of 9 reforming countries, __,,___________ which will be defined below as the 'best performers' attracted 29.4% of FDI inflows, a much higher share than in the previous period. The contribution of the rest of Africa is very low, 1.71%, down from 24.4%. Looking at the contribution of each group to the change in FDI inflows between 1995-98, and 1987-90 it appears that South Africa contributed more than 40%, the fuel exporting countries and the best performers accounted for one third of the change respectively. South Africa has emerged as a strong pole of attraction for foreign investors. South Africa's share of total FDI to SSA reached 28% of the total during 1995-98, from virtually zero during the 1980s and early 1990s. A large share of this FDI (more than 40%) in 1997 came from privatization (30% of South Africa Telkom brought about US$ 1.3 bn ). Part of the increase in FDI in recent years reflects the return of companies that had established operations in neighboring countries during the apartheid period. Looking at the sectoral composition of FDI during the period 1994-9914, about 16% went to the telecommunications sector, 15% to energy and oil, and more than 40% to the manufacturing sector. As to the type of investment, during the period 1994-1998, mergers and acquisition represented 60% of total investments, expansion of existing plants 17% and green-field investment an additional 16%. 13 The declining share is due to a large extent to the inclusion of the Republic of Congo. FDI in Angola, Nigeria, and Equatorial Guinea has increased in the past few years. Gabon also belongs to the oil exporting group but no comparable data on FDI are available for it. 14 This information is from a private agency, Business Map. 15 A number of reforming countries have attracted significantflows of FDI Besides South Africa, there are a group of 9 countries in SSA that have become attractive locations for FDI and that enjoy above average policy and risk ratings. They have been identified according to the following criteria: * First, economic and quantitative criteria. We considered only the countries that during the period 1995-98 attracted FDI inflows above the region average (calculated excluding South Africa and the four oil exporting countries) . Among these countries we considered those that during 1995-98 performed better than the region average'6 in at least three of these four criteria: i) the change in average inflows during the periods 1995-98 and 1987-90; ii) the ratio between FDI and GDP; iii) the ratio of FDI and gross domestic fixed investment and; iv) the ratio of FDI and total exports. The countries that pass this criteria include: Botswana, Cote d'Ivoire, Ghana, Guinea, Lesotho, Mozambique, Namibia, Senegal, South Africa, Tanzania, Uganda, Zambia. * Second, policy and risk criteria. We made a separate selection of best performing countries looking at the CPIA rating, ICRG political risk, and the Institutional Investor ratings. To be chosen, a country's rating had to be higher than the region average in at least two of these indicators. The selected countries include: Botswana, Cote d'Ivoire, Ghana, Gabon, Gambia, Guinea, Kenya, Malawi, Mali, Mauritius, Mozambique, Namibia, Senegal, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe. * We identify as "best performers" the subset of countries that receive FDI inflows (in both absolute and relative terms) above the region average; and that have better than average policy and risk ratings. These countries are: Botswana, Cote d'Ivoire, Ghana, Lesotho7, Mozambique, Namibia, Senegal, South Africa, Tanzania, Zambia. Only two countries, Uganda and Guinea, have attracted larger than average FDI inflows but have lower than average policy and risk ratings. However, while still low, these ratings have improved significantly. For example, Uganda's financial risk rating tripled in the last ten years. Guinea has relatively good policy rating but low credit worthiness. A number of countries with above average policy and risk ratings do not attract above average FDI inflows. These countries include Mauritius, Zimbabwe, Swaziland, Seychelles, Kenya, Gabon, Malawi, Gambia, Mali. Most of these countries have either annual average inflows varying between US$ 19-45 million (Oust below the average); or fall short of the region average in one more of the relative indicators of FDI. Economic 15 The region average (excluding South Africa and the four oil exporting countries) is US$ 46 million. Countries with average annual inflows below the average are: Seychelles, Mali Burkina Faso, Mauritius, Ertrea, Kenya, Malawi, Cape Verde, Swaziland, Madagascar, Sierra Leone, Chad, Togo, Benin, the Gambia, Rwanda, Djibouti, Burundi, Sao Tome and Principe, Mauritania, Comoros, Democratic Republic of Congo, Ethiopia, Guinea-Bissau, Niger, Central African Republic, Gabon, Liberia, Somalia, Sudan. 16 The region average was calculated excluding the four oil exporting countries. In the case of the indicator 'increase in average FDI inflows between 1987-90 and 1995-98', also South Africa was excluded. 17 Lesotho is considered a 'best perforner' though but it is not rated by the Institutional Investor or ICRG because it has attracted significant inflows during 1995-98 and it has a high CPIA rating. 16 factors, such as size of the market, or competitiveness factors should be investigated to explain this performance. Gabon is reportedly having outflows of investment. But there is a problem of missing and inaccurate information, as national sources suggest annual flows of about $ 200 million a year from France to Gabon. Mauritius is one of the early success in attracting FDI. This is traceable to economic and political stability, early adoption of export, oriented policies, and a substantial share of literate and entrepreneur population. With rising wages, however, most of the Asian investors in clothing have relocated and their place has been taken by local enterprises. Graph 5. shows the Graph 5: Best Perfonners: relative FDI/GDP and Political relative piosition of the Risk Index 1995-1998, deviation from region's average best performers with respect to the region's average ratio of FDI to 3 GDP and political risk. Most countries score 2 better than the average . in terms of both FDI to .T GDP ratio and policy risk rating. South Africa. and Ghana l5la0 25 30 receive approximately roL =% the regions' average ratio of FDI to GDP although their political risk rating is better than the average. The best performers have a number of common characteristics: - All countries have reformed their economies during the last 10 years, but the reform process has been difficult and has often followed a stop and go pattern. Ghana experienced policy reversal in 1992. Tanzania started reforms in 1986, back-slided in the early 1990s and re-started in 1995. In some cases reforms have been undermined by falling international prices of primary exports and by droughts. CFA countries adopted deep structural reforms only after the 1994 devaluation. * Good policy performance has been associated with positive economic results. Real GDP per capita growth has increased in most countries. The ratio of gross private domestic investment to gross domestic fixed investment and to GDP has increased, doubling in some countries. The resumption of growth is being supported by a build up of productive capacity, rather than just increased capacity utilization. * Overall, the best performers received twice as much aid (in terms of GDP) than the region as a whole. But there is no particular pattern in the amount of aid received. The ratio of Official Development assistance to GDP varies from 0.3 in South Africa (in 1995-98) to 35% in Mozambique. 17 * Privatization has played a new role in attracting FDI - particularly in Cote d'Ivoire, Ghana, Lesotho, South Africa, Tanzania, and Zambia. But natural resources sectors (diamonds in Botswana and Namibia, copper in Zambia, gold in Tanzania) remain an important source of attraction for foreign investors. 18 Table- 3 Best performers: Selected Indicators, 1987-1990 and 1995-1998 1987-1990 and 1995-1998 (period average, ndllion of USS and percent growth) FDI Macroeconomic Indicators Ratings FDI inflows | FDI!GDP ODA/GDP GPI*/GDFI | GPI/GDP I Real GDP Inflation ICRG Instit. Inv.Rat Countrv million US$ percent share percent share percent share percent share p.cap.growth gdp deflator Political Risk | Corruption Rule of Law IFinancial Risk 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 87-90 95-98 BOTSWANA 73 89 2.80 1.60 5.6 1.9 .. . 7.1 3.9 12.4 9.4 69.4 74.5 72.9 50.0 83.3 75.0 35.3 50.2 COTE DIVOIRE 51 255 0.50 2.43 4.2 8.5 57.8 69.7 5.9 10.8 -2.5 3.8 3.0 4.0 62.2 63.3 50.0 45.8 60.4 50.0 23.4 19.2 GHANA 10 92 0. 1.32 10.6 9.4 35.3 41.1 5.2 11.0 1.4 1.7 32.8 27.7 50.1 65.0 50.0 45.8 33.3 50.0 20.3 30.1 LESOTHIO 14 148 2.93 17.1 25.8 1.8 = = 11.3 = 6.1 4.2 16.2 5.8 == MOZAMBIQUE 6 99 0.25 2.90 36.9 35.3 18.0 48.2 6.0 9.3 6.7 6.1 61.3 19.1 47.1 58.6 66.7 66.7 43.8 45.8 7.4 14.8 NAMIBIA 7 127 0.33 3.93 2.4 5.5 56.5 63.8 10.0 = -1.6 -0.2 12.9 9.1 37.8 83.7 50.0 66.7 33.3 100 .. 36.9' SENEGAL 24 104 0.48 2.23 14.1 12.0 68.2 69.9 8.9 12.9 0.1 2.5 1.5 3.2 56.6 57.1 50.0 50.0 33.3 45.8 19.1 21.6 SOUTH AFRICA -81 1528 -0.09 1.21 0.0 0.3 64.1 71.9 13.2 -0.1 0.2 15.3 8.3 57.2 76.6 85.4 75.0 29.2 58.3 32.9 45.7 TANZANIA .. 138 0.00 2.15 23.3 15.3 .. 81.4 14.0 0.7 5.1 21.1 55.0 67.0 56.3 50.0 58.3 81.9 9.8 18.4 ZAMBIA 134 160 4.02 4.56 13.9 30.9 46.4 52.6 4.0 6.9 -1.2 -1.1 65.5 27.1 46.6 67.6 33.3 50.0 31.3 62.5 9.81 16.2 "Best Performers " In FDI Indicators only GUINEA 15| 521 0.60 11.37 | 11.6 9.0 51.4 69.9 8.7 13.0 0.8 2.1 23.5 4.0 46.7 48.1 54.2 58.3 50.0 50.0 14.5 15.0 UGANDA | * 1161 0.00 11.84 8 .8| 13.0 51.4 63.7 5.8 10.0 3.1 4.6 115 6.1 38.5 53.1 50.0 41.7 16.7 66.7 5.3 17.3 "the value is 1.8 for SSAfrica, and 1.2 for SSAfrica less fuel exporting countries ..scale for all ratings: 0 - 100, with 100 = less risk jI I * Gross Private Investment / Gross Domestic Fixed Investment *tGDP Deflator Source: HMF. World Banr, Staff estimates Africa less fuel exporting countries is 1.2 scale for all ratings: 0 - 100, with 100 = less risk * Gross Private Investment / Gross Domestic Fixed Investment * GDP Deflator ***Notice that the GDP ??? fell to single digits in 1999 fell to single digits in 1999 Source: INF, World Bank, Staff estimates 19 V SECTORAL PATTERN OF FDI Data on sectoral FDI are weak There is very little information on the sectoral composition of FDI in SSA. The available information, which comes from national sources in industrial countries, is often inconsistent with OECD and IMF data. Looking at existing information on stocks and flows it appears that much FDI is either in the primary sector, particularly petroleum, or in infrastructure, particularly telecommunications. And, with the exception of South Africa, other SSA countries have seen very little inflows in the manufacturing sector in recent years. Resource richlpolicy poor countries continue to attract FDI Despite political and social instability, Africa has historically attracted a relatively large share of FDI because of its immense natural resources. Besides oil, gold, diamonds and copper, Africa possesses more than half of the world's cobalt, and manganese, one third of bauxite and more than 80% of world's reserves of chromium and platinum. This abundance of natural resources may have contributed, paradoxically, to low growth (Sachs and Warners, 1995). Resource booms tend to reduce the competitiveness of the non- resource sector and to exacerbate rent seeking behavior (for the appropriation of revenues from exploitation of oil and minerals). In particular, fuel is often dominated by foreign companies, because of high initial capital and technology required, and the longer time that is requested for the recovery of capital. Three countries in Africa have long been significant petroleum exporters - Angola, the Republic of Congo and Nigeria. Equatorial Guinea has recently joined the club as new explorations increased crude oil production from 2,500 barrel per day in 1992 to 83,000 in 199818. Table 4 shows selected indicators for these countries. Aside from population which varies considerably, these four have many similar characteristics: oil represents more than 80% of total exports; they are among the top 10 SSA countries with respect to FDIIGDP, FDIVgross domestic investment and FDIVexport ratios; they have relatively low social indicators; they have been involved in violent social conflict (Angola, Congo and Nigeria, though Nigeria elected its first democratic Government in 1999); and finally, corruption, political and financial risks indicators are all high. No comparable data on FDI is available for Gabon which also belongs to the oil exporting group. 20 Table- 4 Selected Indicators in Fuel Exporting Countries Angola Republic of Congo Eqiatorial Guinea Nigeria Economic and social indicators (1995-98 averages) % oil in exports 88 86 90 95 FDI inflows(millions) 570 361 314 984 FDl/GDP 8.5 16.2 103.7 2.7 FDI/GDFI 46.4 41.7 101.9 16.8 Population ( 1998, millions) 12 2.8 0.43 121 GNP per capita, 1998, $PPP* 840 1430 n.a. 820 Infant motality rates (niid 90s)** 125 90 108 77 Gross prinmary enrolment rates (mid 90s)*1f n.a. 114 85 98 Policy and risk ratings( 1995-98 averages) Political risk-ICRG (scale 0-100, 100=best) 50.8 55.5 n.a. 51.7 Financial risk - Institutional Investors (scale 0-100, 100= less 12.3 12.6 n.a. 15.7 risky) * Purchasing parity GNP per capita in low income countries = S2130; SSA = 1430 *"nfant mortality rates per 1000 births. Average low income countries= 69; SSA = 91 *** As % of school population. Average low income countries = 108; SSA = 77 In Nigeria, as well as in Angola and Congo, oil reserves, mostly under state control, have given rise to rent seeking behavior. The pay-offs from the exploitation of oligopolistic rents are so high that interest groups have been struggling for a share of the rents instead of engaging in productive entrepreneurship (Diamond, 1993). In this situation, international firms are often able to generate and share many of these rents with the ruling elite. FDI does not translate into higher economic and social development. This is not an inevitable outcome in resource-rich countries. For example, Botswana, despite its endowments of diamonds, nickel and copper (accounting for over 50% of its GDP) has not been plagued by endemic rent seeking behavior. A competent, non corrupt and relatively efficient political class and civil service have managed to ensure political and macroeconomic stability ever since independence. Foreign investments are large, particularly in the diamond sector and Botswana has one of the highest ratio of FDI per capita in Africa. The Government of Botswana has managed to share the benefits of FDI and growth (Coolidge and Rose-Ackerman, 1998) with the population through appropriate competition, trade and taxation policies. A second example is Mauritius, a country where FDI has played a pivotal role in economic development. The implementation of export development strategies has succeeded in diversifying the economy away from primary products - particularly sugar- and in creating competitive advantages in manufacturing. And the labor intensive nature of this strategy has ensured the spreading of the benefits from growth. FDIflows to manufacturing sector remain small Table A6 indicates that during 1996-97, the stock of manufacturing FDI represented only 18% of'the total FDI stock in SSA for the U.S., 22% for France and 53% for Germany. These percentages were slightly lower than in the late 1980s. Moreover, much of it was concentrated in South Africa. Thus, 80% of Germany's and over 50% of U.S.'s manufacturing FDI was invested in South Africa. As to manufacturing inflows, during 1996-97 they represented only 12% of British FDI to Africa, of which 80% went to South Africa. Japan's manufacturing FDI represented 45% of' its total FDI in Africa, but much of it went to Liberia (in the transport sector.). 21 Finally, U.S. manufacturing inflows represented less than 9% of total US FDI in Africa of which about 60% went to South Africa. Studies suggest a significant withdrawals of French and British manufacturing investors during the late 1980s and early 1990s from SSA. French manufacturing investors withdrew from West Africa during the 80s, as reduction in protection in import substituting industries resulted in lower sales and profits (Cockcroft and Riddell, 1991). Analyzing British19 manufacturing investment in the 14 anglophone countries in Africa during the period 1989-1994, Bennell (1995) finds a strong process of corporate disengagement from SSA during the early 1990s, particularly in Kenya, Nigeria, Zambia and Zimbabwe. Surveys conducted among British investors indicate that the main reason was the deterioration of economic opportunities in these countries, including a rapid process of de-industrialization and restructuring following deregulation and trade liberalization. Investors were preoccupied by economic and market pitfalls, rather than Government policies and regulations (with the significant exception of concerns about persistent foreign exchange availability, dividend remittances and exchange rate stability). Infrastructure, particularly telecommunications, receives largest share Using information on private infrastructure transactions from FIAS, Sader (1999) estimates that during the period 1994-98 SSA received US$ 5.1 bn in infrastructure FDI inflows, up from only US$ 46 million during 1990-93. The overwhelming majority of these inflows (89%) were concentrated in the telecom sector, with the rest in the power (6%) and in the transport (5%) sectors. As to the type of transactions, 83% of infrastructure FDI during 1990-98 derived from privatization, with less than 8% from new green-field investments. A similar proportion of privatization transactions took place in Latin America and in Eastern Europe. By contrast, the emphasis in East and South Asia was almost exclusively on new green-field investment, rather than privatization. POLICY CONCLUSIONS This paper points to two policy conclusions which need to explored and verified in subsequent work. First, FDI in natural resources (oil, minerals) and in infrastructure (telecommunications) are and will continue to remain important in SSA. Typically, these sectors have substantial barriers to entry and market concentration and investments are exposed to 'structural vulnerability'(Moran, 1998) because they require large sunk capital. As it is difficult to walk away from commitments, and in the absence of private insurance schemes, foreign investors need to extract quite favorable terms to compensate for the risk of policy reversal. In many cases, international firms, protected from competition, have been able to appropriate oligopoly rents deriving from barriers to entry. To maximize the benefits from FDI in these sectors, Governments need to promote competition, strengthen legal and regulatory frameworks and build institutions for '9 British corporate investment typically comprises between 50% and 80% of all manufacturing FDI in each country (and only less than 1% of total British manufacturing investment overseas). 22 corporate governance. There is also a need for international mechanisms to ensure the credibility of contracts through, for instance, insurance and guarantee schemes. Second, deeper analysis is needed to verify if Africa suffers from an 'image' problem. Preliminary evidence presented in this paper suggests that this is not the case. In recent years SSA has managed to increase its ratio of FDI to GDP more than other regions, while remaining at the bottom of the policy and financial risk ratings. But it has failed to attract the kind of manufacturing investment that provides technology, skills and market access. Attracting this type of FDI will be particularly important now, as trade liberalization has exposed domestic enterprises to international competition. Many of them have found adjustment difficult (Lall, 1999). With lagging skills, technology and competitiveness, they only have a limited ability to gear up to world competition by upgrading these factors on their own. Good macroeconomic policies and social stability are only one, though crucial, element for attracting manufacturing FDI. Lowering production and transaction costs, opening trade and competition policies, building a transparent regulatory and incentive framework and improving administrative efficiency, are areas where the attention of African Governments should concentrate in the future. 23 Annex A Table Al SS Africa: FDI Inflows by Countries, 1987-1998 Table A2 FDI Inflows as Percent Of GDP. GDFI & EXPORTS in SS Africa 1987-1998 Table A3 Outflows from OECD Countries into OECD and non OECD Table A4 FDI Outflows from OECD Countries into SS Africa & non OECD Area Table A5 FDI Outflows from Selected OECD Countries Table A6 Sectoral composition of FDI, stocks and flows. Table A7 Policy and Financial Risk Ratings Table A8 SS Africa: Privatization Proceeds and Foreign Exchange Earned, 1988-1998 24 Table - A.1 SS Africa: FDI inflows by Countries, 1987-1998 (period averages and changes on previous period, millions of USS) period averages changes Country 1987-1990 1991-1994 1995-1998 1987-1990 1991-1994 1995-1998 SS AFRICA 1455 1807 5583 385 352 3776 ANGOLA 29 395 570 -285 367 175 BENIN I 8 10 1 6 3 BOTSWANA 73 -87 89 20 -160 176 BsURKINAFASO 4 16 36 3 12 20 BURUNDI I 1 2 0 -1 2 CAMEROON 2 148 102 -112 146 -46 CAPE VERDE I 1 21 1 0 19 CENTRAL AFRICAN REPUBLIC 3 -8 -1 -3 -11 7 CHAD 7 11 14 -16 4 3 COMOROS 4 0 1 4 -3 0 CONGO, Democratic Rep. of 0 0 0 0 0 0 CONGO,Republicof -2 131 361 -34 133 231 COTEDIVOIFE 51 20 255 12 -32 235 DITBOLTM 0 2 3 0 2 1 EQUATORIAL GUINEA 2 22 314 6 20 292 ERITREA 0 26 .. .. 26 ETHIOPIA 0 0 0 0 0 0 GABON 66 -113 -95 5 -179 18 GAMBIA,THE, 7 9 8 6 2 -1 GHANA 10 100 92 6 90 -9 GUINEA 15 70 52 13 55 -18 GUINEA-BISSAU 0 0 0 0 0 0 KENYA 40 8 26 16 -32 19 LESOTHO 14 11 148 11 -3 137 LIBERIA 10 .. -4 MADAGASCAR 9 14 16 9 5 2 MALAWI 0 0 22 -1 0 22 MALI 3 4 42 1 0 39 MAURITANIA. 3 8 1 -2 4 -7 MAURITUS 29 -2 31 24 -32 33 MOZAMBIQUE 6 29 99 -33 23 70 NAMIBIA 7 85 127 7 78 42 NIGER 16 0 0 13 -16 0 NIGERIA 865 618 984 557 -248 366 RWANDA 15 4 3 1 -12 0 SAO TOME AND PRINCIPE 0 2 2 0 2 0 SENEGAL 24 20 104 31 -4 85 SEYCHELLES 21 7 45 10 -14 38 SIERRALEONE 18 1 1 14 59 -7 3 SOMALIA 0 6 SOUTH AFRICA -81 124 1528 -82 205 1404 SUDAN I - 1 SWAZILAND 51 38 19 41 -13 -18 TANZANIA 0 37 138 0 37 101 TOGO 12 10 12 8 -2 2 UGANDA 0 3 116 0 3 113 ZAMBIA 134 10 160 103 -124 150 ZIMBABWE -18 44 85 -19 62 42 Source: IMF, World Bank, Staff estimates 25 Table - A.2 FDI inflows as percent of GDP, GDFI & EXPORTS in SS Africa 1987 -1998 percent values FDIUGDP FDIIGDFI FDIIEXPORTS Country 1987-1990 1991-1994 1995-1998 1987-1990 1991-1994 1995-1998 1987-1990 1991-1994 1995-1998 SS AFRICA 0.54 0.64 1.80 3.20 3.71 9.79 2.15 2.39 5.82 ANGOLA 0.53 6.05 8.45 2.73 35.76 46.43 0.95 11.31 13.05 BENIN 0.09 0.50 0.46 0.65 2.99 2.75 0.35 1.75 1.86 BOTSWANA 2.81 -1.93 1.65 8.57 -7.41 6.86 4.03 -4.06 3.38 BURKINAFASO 0.17 0.76 1.43 0.86 3.64 5.92 1.55 6.38 11.93 BURUNDI 0.10 0.05 0.23 0.57 0.38 2.62 0.99 0.56 2.71 CAMEROON -0.03 1.36 1.17 0.10 8.62 7.26 0.11 6.89 4.52 CAPE VERDE 0.39 0.44 4.87 0.87 1.18 14.70 2.02 2.83 18.36 CENTRAL AFRICAN REPUBLIC 0.21 -0.77 -0.14 1.74 -5.88 -1.36 1.22 -4.55 -0.63 CHAD 0.56 0.79 0.65 5.81 6.26 4.81 3.38 5.24 5.04 COMOROS 1.86 0.19 0.27 11.47 0.91 1.42 11.30 0.88 1.48 CONGO, Democratic Rep. of 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 CONGO,Republicof 0.03 7.16 15.38 -0.48 19.90 41.79 -0.18 11.77 24.14 COTEDIVOIRE 0.50 0.16 2.43 4.80 2.26 15.86 1.58 0.61 5.46 DJIBOUTI 0.00 0.39 0.65 .. 2.52 7.15 .. 0.82 1.58 EQUATORIAL GUINEA 1.74 15.64 41.92 .. 38.23 41.20 4.76 38.42 4S.84 ERITREA , 0.00 0.00 .. 0.00 0.00 ., 0.00 0.00 ETHIOPIA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 GABON 1.67 -2.33 -1.76 5.61 -9.94 -6.85 3.55 -4.57 -3.03 GAMBIA, THE 2.43 2.57 1.91 13.47 12.27 9.84 4.80 4.36 4.09 GHANA 0.18 1.76 1.34 1.49 8.88 6.05 1.04 8.86 5.25 GUINEA 0.60 2.15 1.37 3.56 12.90 7.28 2.02 10.90 6.81 GUINEA-BISSAU 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 KENYA 0.48 0.10 0.27 2.39 0.58 1.37 2.06 0.33 0.88 LESOTHO 2.90 1.57 17.10 5.05 2.06 22.10 18.23 8.04 13.03 I.BERIA 0.82 .. .. .. .. .. MADAGASCAR 0.31 0.47 0.43 2.56 4.20 3.61 1.96 2.60 1.98 MALAWI 0.00 0.00 1.10 0.01 0.00 9.72 0.01 0.00 4.28 MALI 0.15 0.29 1.62 0.84 0.75 7.49 0.95 0.84 7.27 MAURITANIA 0.35 0.75 0.07 1.50 3.80 0.36 0.72 1.69 0.15 MAURITIUS 1.30 -0.07 0.75 4.94 -0.26 2.91 2.06 -0.13 1.21 MOZAMBIQUE 0.25 1.32 2.92 1.75 8.07 15.30 3.23 10.02 23.09 NAMIBIA 0.30 3.04 3.93 2.00 15.25 18.47 0.62 5.65 7.13 NIGER 0.66 0.00 0.00 5.86 0.00 0.00 3.92 0.00 0.00 NIGERIA 3.56 2.39 2.68 20.66 10.70 16.81 10.77 5.63 7.10 RWANDA 0.66 0.20 0.20 4.50 1.79 2.14 10.10 3.92 3.45 SAOTOMEANDPRINCIPE 0.00 3.72 4.98 0.00 7.63 9.40 0.00 15.82 23.33 SENEGAL 0.45 0.51 2.23 3.70 2.66 12.29 1.92 1.51 6.75 SEYCHELLES 7.18 1.57 8.49 31.41 6.72 24.77 11.14 2.91 13.54 SIERRALEONE 2.11 1.32 1.59 19.22 15.72 38.74 12.17 4.86 9.73 SOMALIA 0.00 .. .. 0.00 .. .. 0.00 SOUTH AFRICA -0.09 0.11 1.21 -0.45 0.64 6.95 -0.32 0.44 2.89 SUDAN 0.01 .. .. .. .. .. SWAZILAND 7.42 4.00 1.53 35.56 14.97 5.72 8.63 4.78 1.78 TANZANIA 0.00 0.84 2.15 0.00 3.16 12.27 0.00 5.70 11.33 TOGO 0.83 0.66 0.82 4.21 5.01 5.97 2.16 2.42 2.45 UGANDA 0.01 0.08 1.78 0.04 0.57 11.69 0.06 1.08 15.80 ZAMBIA 4.01 0.30 4.54 44.60 2.59 33.52 12.18 0.88 13.77 ZIMBABWE -0.24 0.63 1.17 -1.40 2.76 4.75 -0.96 2.11 2.93 Source: IMF, World Bank, Staff estimates 26 Table - A.3 FEIT Outflows from OECD Countries into OECD and non OECD (period average, million of US$ and percent share ) WORLD OECD AREA NON-OECD-AREA NON-OECD/OECD 87-90 91-94 95-96 87-90 91-94 95-96 87-90 91-94 95-96 87-90 91-94 95-96 from Oecd Area 199146 219230 273543 160936 160533 214984 38165 58545 58559 23.7 36.5 27.2 from US 28857 56690 83454 20546 37617 60540 8311 19073 22914 40.5 50.7 37.8 from UK 30511 22245 39106 26867 17813 32222 3643 4431 6884 13.6 24.9 21.4 fromJapan 51210 38200 .. 39500 26823 .. 11711 11377 .. 29.6 42.4 from France 20562 24924 23077 15991 13835 .. 4571 11089 .. 28.6 80.1 from Germany 15203 18930 34259 14644 17104 27634 514 1684 6625 3.5 9.8 24.0 fromtheNether. 8939 13652 20162 7748 11664 15165 1191 1988 4998 15.4 17.0 33.0 from Switzerland 6304 7946 14084 4787 6493 12666 1517 1453 1417 31.7 22.4 11.2 fromltaly 4256 6242 6098 3411 4313 5313 845 1929 785 24.8 44.7 14.8 fromNorway 1141 1354 4234 991 1274 3861 150 79 373 15.1 6.2 9.7 from Korea 542 1503 3704 292 697 1791 250 807 1913 85.5 115.8 106.8 from Canada 5547 6091 11603 4955 3824 8327 592 2267 3277 12.0 59.3 39.4 from Bel-Lux. 4599 5519 9886 3576 5276 9097 1024 243 790 28.6 4.6 8.7 Source: based on OECD, International Direct Investment Yearbook,1998 27 Table - A.4 FDI Outflows from OECD Countries into SS Africa and non OECD Area (period average, million of US$) destination SUB-SAHARAN SOUTH AFRICA NON-OECD AREA SSAFRICA/NON-OECD AREA period average period average period average percent shares Originator Country 1987-1990 1991-1994 1995-1996 1987-1990 1991-1994 1995-1996 1987-1990 1991-1994 1995-1996 1987-1990 1991-1994 1995-1996 TOTAL Area Oecd 1160 1995 3035 79 466 1276 38165 58545 58559 3.0 3.4 5.2 from United States -222.5 334.0 428.5 .. 140.0 241.5 8311 19073 22914 -2.7 1.8 1.9 fromUnitedKingdom 659.7 590.0 965.7 .. 287.0 348.0 3643 4431 6884 18.1 13.3 14.0 fromJapan 536.8 464.5 .. 0.0 4.5 9.0 11711 11377 .. 4.6 4.1 fromFrance -12.8 199.9 478.1 -0.2 16.7 90.5 4571 11089 .. -0.3 1.8 fromGermany 73.4 100.9 287.5 78.2 77.7 256.1 514 1684 6625 14.3 6.0 4.3 from the Netherlands 48.1 74.4 424.4 .. -0.7 36.8 1191 1988 4998 4.0 3.7 8.5 from Switzerland 46.5 69.5 115.7 .. 15.0 101.0 1517 1453 1417 3.1 4.8 8.2 from Italy . 19.9 53.1 .. 1.1 7.3 845 1929 785 .. 1.0 6.8 from Norway 23.9 18.8 53.5 .. 0.0 .. 150 79 373 15.9 23.7 14.3 from Korea 5.0 41.5 -18.0 .. 1.3 4.0 250 807 1913 2.0 5.1 -0.9 from Canada .. .. .. .. .. .. 592 2267 3277 Source:based on OECD, International Direct Investment Yearbook,1998 28 Table - A5 FDI Outflows from selected OECD Countries (percent shares relative to Non-Oecd-Area) Countries ECA SS Afrlca LAC MENA Asian Countries 87-90 91-94 95-96 87-9o 91-94 95-96 87-90 91-94 95-96 87-90 91-94 95-96 87-90 91-94 95-96 from Oecd Area 0.5 3.2 5.6 3.0 3.3 5.2 45.3 33.7 39.0 1.5 3.1 3.2 25.1 29.6 29.2 from US 0.0 2.9 4.4 -2.7 1.8 1.9 86.7 57.6 57.7 -1.4 4.1 3.6 16.6 30.6 27.S from UK 0.2 2.8 5.9 18.1 13.3 14.0 52.0 35.4 30.5 0.1 6.3 2.5 24.2 40.1 40.4 fromJapan 0.1 0.8 .. 4.6 4.1 .. 41.9 31.5 .. 0.9 2.9 .. 50.6 60.6 from France 0.4 1.8 .. -0.3 1.8 .. 1.5 3.1 .. 6.6 2.7 .. 3.7 2.8 from Germany 8.0 18.2 9.2 14.3 6.0 4.3 41.8 37.4 24.5 13.8 0.7 0.6 34.0 32.4 31.9 from the Nether. 0.6 5.8 4.6 4.0 3.7 8.5 41.5 59.0 47.4 4.2 0.6 0.8 24.7 40.5 27.3 from Switzerland 3.4 4.3 10.4 3.1 4.8 8.2 80.1 51.0 2.1 3.5 2.1 10.6 13.3 36.6 62.9 from Italy 3.5 2.3 6.6 0.0 1.0 6.8 0.0 -0.5 29.3 5.4 -1.5 3.4 0.0 3.2 16.1 from Norway 0.0 3.1 7.0 16.0 23.7 14.3 100.7 53.2 27.7 103.1 5.8 6.7 -22.4 -12.9 -1.3 from Korea 0.0 0.0 0.0 2.0 5.1 -0.9 10.9 4.5 5.1 20.1 8.8 3.9 57.9 75.3 88.0 from Canada 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 from Bel-Lux. 1.1 34.1 3.6 0.0 -3.6 21.7 78.8 158.0 45.9 -0.4 -2.8 2.0 1.4 26.8 18.5 Source: based on OECD, International Direct Investment Yearbook,1998 29 Table-A6 Sectoral Composition of FDI, Stocks and Flows (US$ million) FDI Stocks Orignator Destination US SS Africa South AMica 1989 1997 1989 1997 All Economic Activities 3936 10253 699 2347 Petroleum 2454 5872 Manufacturing 757 1899 396 1013 France All Economic Activities 1581 4115 Petroleum 304 1735 Manufacturing 441 938 Germany All Economic Activities 2387 2978 1597 1925 Petroleum Manufacturing 1393 1568 1180 1246 FDI Flows UK total manufacturing total manufacturing 1994 503 277 262 172 1995 1122 156 740 97 1996 877 195 -39 123 1997 1121 261 657 249 Japan total manufacturing total manufacturing 1996 446 213 230 1997 336 141 133 US total manufacturing total manufacturing 1993 837 158 72 50 1994 762 275 260 122 1995 352 104 289 110 1996 1678 458 194 181 1997 3371 436 1295 350 Source: US Department of Commerce, Bureau of Economic Analysis, International Investment Division, 1999 Banque de France, Bulletin de la Banque de France, n.64, Avril 1999 Bundesbank International Link, June 1999 UK,Office of National Statistics, 1999: Overseas Direct Investment 1997. Japan, Ministry of Finance, Direct Investment Section, Int'nl Capital Division 30 Table - A.7 Policy and Financial Risk Ratinzs ICRC PoLRisk ICRG corru tion ICRG rule of law Instit. Investors R 87-90 91-94 95-97 87-90 91-94 95-98 87-90 91-94 95-98 87-90 91-94 95-98 SOUTH ASIA 29.1 26.8 31.8 Bangladesh 29.7 45.0 58.3 0.0 27.1 33.3 16.7 29.2 50.0 18.0 18.9 26.8 India 43.3 51.2 64.7 43.8 41.7 50.0 29.2 45.8 66.7 48.1 39.1 46.1 Pakistan 33.9 41.7 57.4 33.3 33.3 41.7 29.2 29.2 54.2 30.6 28.0 28.1 Sri Lankia 34.4 43.2 56.9 50.0 50.0 58.3 8.3 18.8 58.3 23.0 25.5 32.8 EASr ASIA 41.0 38.7 41.2 Brunei 73.1 78.0 80.0 83.3 81.3 66.7 66.7 68.8 100.0 0.0 0.0 0.0 Myanmar 32.4 39.6 53.5 33.3 33.3 27.8 33.3 50.0 72.2 15.0 13.6 20.1 China 61.8 70.1 66.8 62.5 72.9 41.7 50.0 70.8 83.3 59.9 55.7 57.4 Hong Kong 69.7 70.3 80.9 83.3 83.3 77.8 79.2 72.9 94.4 67.9 65.1 64.4 Indoriesia 38.9 57.4 63.4 0.0 43.8 37.5 33.3 58.3 62.5 45.0 51.0 47.3 Malaysia 62.8 70.1 77.8 66.7 66.7 62.5 62.5 60.4 83.3 57.0 64.3 65.6 Korea, Rep. 64.3 57.7 59.0 83.3 54.2 44.4 35.4 41.7 83.3 65.2 68.7 66.9 Korea, DPR 60.9 75.3 83.2 4.3 6.4 6.0 Mongolia 60.8 65.4 70.1 66.7 66.7 66.7 25.0 54.2 66.7 0.0 0.0 0.0 New Caledonia 42.7 48.8 61.9 33.3 33.3 33.3 27.1 25.0 50.0 0.0 0.0 0.0 Papua N Guinea 61.7 59.6 64.2 50.0 50.0 58.3 62.5 50.0 50.0 37.2 32.4 32.5 Philippines 39.3 51.8 65.6 33.3 43.8 54.2 16.7 41.7 66.7 24.6 27.7 41.2 Singapore 81.2 81.1 85.8 79.2 66.7 66.7 83.3 85.4 100.0 75.8 79.7 83.6 Taiwan 75.8 78.0 81.2 66.7 66.7 61.1 83.3 83.3 77.8 76.8 78.0 77.6 Thailand 58.0 63.5 73.5 50.0 50.0 45.8 62.5 72.9 83.3 58.0 62.0 58.6 Vietnam 48.7 59.1 71.8 47.9 50.0 41.7 50.0 54.2 83.3 .. 20.5 31.3 EECA 40.9 34.2 40.2 Albania 66.5 60.6 66.8 66.7 62.5 54.2 66.7 50.0 62.5 11.7 11.5 12.6 Bulgaria 68.9 71.9 74.6 58.3 70.8 66.7 83.3 83.3 79.2 43.8 20.6 23.6 Cyprus 55.1 74.4 76.1 50.0 75.0 83.3 47.9 79.2 83.3 44.0 48.8 56.6 Czech Rep. 69.1 76.2 85.8 70.8 79.2 66.7 83.3 85.4 95.8 53.5 48.5 60.9 Hungary 75.3 77.0 84.3 70.8 83.3 83.3 83.3 83.3 100.0 45.0 43.6 48.4 Poland 58.6 74.0 83.8 70.8 83.3 83.3 66.7 89.6 87.5 18.3 27.7 46.5 Romania 51.4 65.0 72.7 39.6 66.7 58.3 37.5 68.8 83.3 31.9 25.5 32.2 Slovak Rep. 69.1 74.7 79.8 69.8 75.0 58.3 83.3 91.7 91.7 16.5 19.9 40.9 Slovenia 0.0 0.0 0.0 0.0 0.0 0.0 20.4 26.5 46.3 Russia 69.1 55.5 60.6 66.7 56.3 41.7 45.8 56.3 58.3 61.7 24.5 24.6 Yugoslavia 44.2 37.9 58.6 50.0 50.0 50.0 33.3 18.8 77.8 28.2 13.2 9.1 MENA 31.6 31.6 35.2 Algeria 61.3 47.6 43.5 66.7 56.3 41.7 35.4 31.3 45.8 40.2 28.7 24.0 Bahrain 51.1 68.2 65.7 50.0 66.7 61.1 66.7 87.5 83.3 54.6 50.6 50.5 Egypt 45.8 59.3 61.4 33.3 54.2 45.8 37.5 45.8 66.7 23.3 27.2 38.0 Iran 36.1 62.6 69.6 50.0 56.3 66.7 20.8 60.4 83.3 20.7 29.2 26.6 Iaq 33.1 25.9 35.2 41.7 16.7 16.7 27.1 25.0 33.3 16.2 8.8 8.1 Israel 41.2 66.8 65.1 83.3 83.3 72.2 29.2 72.9 83.3 34.8 39.3 51.9 Jordan 43.1 62.7 74.2 50.0 62.5 66.7 33.3 62.5 75.0 32.1 21.7 33.1 Kuwait 44.7 60.5 74.1 50.0 43.8 50.0 43.8 56.3 88.9 59.6 47.9 55.1 Lebanon 14.5 47.5 59.9 33.3 37.5 33.3 16.7 47.9 66.7 7.7 15.7 29.2 Libya 41.5 61.9 62.0 50.0 62.5 66.7 29.2 70.8 72.2 24.4 28.2 28.6 Morocco 48.2 62.7 68.9 45.8 50.0 50.0 33.3 62.5 100.0 25.4 32.4 40.4 Oman 56.6 67.3 72.3 50.0 50.0 50.0 62.5 68.8 83.3 51.6 50.2 52.7 Qatar 49.8 62.9 69.4 33.3 33.3 33.3 50.0 58.3 100.0 54.9 52.1 53.0 Saudi Arabia 52.6 65.4 65.8 37.5 33.3 33.3 64.6 72.9 88.9 60.5 56.9 55.2 Syria 42.1 61.1 69.8 33.3 54.2 66.7 33.3 52.1 77.8 18.1 21.5 24.5 Tunisia 56.8 63.7 71.0 50.0 50.0 50.0 33.3 58.3 77.8 35.7 39.5 46.6 Yemen, Rep. 40.7 57.9 50.0 50.0 31.3 41.7 61.1 0.0 0.0 0.0 31 Table - A7 Policy and Financial Risk Ratings ICRG PoLRisk ICRG corruption ICRG rule f law Insdt. Investon R. 87-90 91-94 9S-9S 87-91) 91-94 95-9S 87-90 191-94 9-9S 87-90 91-94 95-9S IAC 20.8 24.0 30.5 Argentina 62.1 72.4 77.2 66.7 58.3 41.7 50.0 60.4 83.3 21.5 29.1 40.2 Baharnas,The 66.| 71.1 78.1 0.0 29.2 66.7 66.7 66.7 66.7 85.0 85.0 88.8 Bolivia 43.9 52.7 60.1 29.2 35.4 50.0 16.7 27.1 50.0 10.0 18.0 25.3 Brazil 68.8 67.9 65.9 66.7 62.5 50.0 66.7 62.5 41. 7 28.6 27.9 37.7 Chile 55.8 68.3 79.3 33.3 33.3 27.8 66.7 68.8 83.3 31.7 48.4 61.0 Colombia 54.7 59.6 56.5 50.0 50.0 58.3 16.7 18.8 33.3 36.9 39.7 46.7 Costa Rica 69.7 74.7 76.5 50.0 50.0 37.5 66.7 66.7 66.7 18.6 25.9 34.3 Cuba 57.9 62.3 68.0 83.3 83.3 83.3 83.3 83.3 83.3 12.0 8.2 10.8 Dominican Rep. 54.0 58.5 66.5 50.0 50.0 44.4 50.0 54.2 66.7 16.2 19.1 24.2 Ecuador 60.4 62.2 61.3 50.0 50.0 58.3 66.7 66.7 62.5 20.2 21.5 26.0 El Salvador 32.5 51.0 67.8 50.0 50.0 50.0 16.7 33.3 50.0 9.5 14.2 24.5 Guatemala 36.8 47.1 65.5 33.3 41.7 58.3 16.7 33.3 45.8 14.6 18.5 24.6 Guyana 42.2 55.0 71.9 33.3 33.3 50.0 16.7 29.2 66.7 0.0 0.0 0.0 Haiti 27.5 30.6 52.2 16.7 18.8 50.0 16.7 18.8 45.8 8.3 7.8 11.3 Honduras 41.8 51.4 54.3 16.7 16.7 37.5 33.3 45.8 41.7 13.8 15.2 18.4 Jamaica 62.4 69.5 75.1 33.3 33.3 33.3 33.3 41.7 50.0 17.1 21.8 28.2 Mexico 68.3 71.6 68.2 33.3 37.5 50.0 50.0 50.0 45.8 30.3 43.3 43.1 Nicaragua 41.4 52.7 63.5 50.0 50.0 50.0 33.3 41.7 66.7 5.2 8.5 11.7 Panama 45.1 50.5 60.0 83.3 83.3 75.0 33.3 41.7 50.0 22.7 20.2 31.7 Paraguay 48.2 66.9 70.8 33.3 33.3 33.3 33.3 58.3 66.7 27.2 27.8 32.3 Peru 40.3 45.0 56.4 0.0 35.4 33.3 16.7 31.3 50.0 11.9 15.4 31.0 Suriname 41.5 51.7 63.6 50.0 50.0 50.0 16.7 22.9 50.0 0.0 0.0 0.0 Trinidad&Tob. 57.0 61.5 66.6 39.6 50.0 50.0 66.7 66.7 66.7 34.6 30.0 39.6 Uruguay 62.5 65.9 66.4 50.0 50.0 50.0 50.0 50.0 50.0 29.0 33.6 41.8 Venezuela 69.9 67.8 68.0 50.0 50.0 50.0 66.7 66.7 66.7 34.1 37.5 33.7 SSAPRICA 17.1 183 213 Angola 43.1 40.7 50.8 50.0 50.0 41.7 29.2 20.8 41.7 11.9 13.1 12.3 Benin 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17.2 17.2 17.1 Botswana 69.4 72.6 74.5 72.9 62.5 50.0 83.3 83.3 75.0 35.3 40.7 50.2 BuwcinaFaso 50.7 47.1 54.4 66.7 54.2 41.7 50.0 54.2 66.7 17.5 17.5 18.6 Cameroon 50.2 47.6 52.9 37.5 50.0 41.7 50.0 37.5 50.0 32.1 21.3 18.7 Congo,Denn 31.2 26.0 30.0 0.0 0.0 11.1 16.7 8.3 22.2 9.8 8.8 7.4 Congo 53.9 48.6 55.5 50.0 50.0 54.2 33.3 33.3 41.7 14.4 14.9 12.6 Cote dlvoire 64.5 66.9 63.4 50.0 66.7 45.8 60.4 50.0 50.0 23.4 16.7 19.2 Ethiopia 32.8 34.3 59.6 50.0 35.4 33.3 45.8 22.9 79.2 8.1 9.2 15.7 Gabon 61.0 59.2 60.6 33.3 18.8 16.7 33.3 54.2 50.0 31.4 26.9 24.9 Gambia 52.5 62.1 61.0 50.0 50.0 54.2 56.3 58.3 83.3 0.0 0.0 0.0 Ghana 50.1 60.2 65.0 50.0 52.1 45.8 33.3 50.0 50.0 20.3 23.6 30.1 Guinea 46.7 47.6 48.1 54.2 66.7 58.3 50.0 50.0 50.0 14.5 14.5 15.0 Guinea Bissau 43.3 43.7 43.1 33.3 33.3 33.3 16.7 16.7 16.7 0.0 0.0 0.0 Kcenya 54.0 59.5 69.4 50.0 50.0 41.7 62.5 52.1 66.7 30.4 24.8 27.2 Liberia 23.4 16.0 34.0 8.3 2.1 16.7 31.3 16.7 25.0 9.8 6.7 6.9 Madagascar 60.2 54.0 59.7 66.7 66.7 66.7 64.6 37.5 50.0 0.0 0.0 0.0 Malawi 52.6 52.8 65.6 66.7 52.1 50.0 33.3 37.5 66.7 15.8 17.1 19.9 Mali 37.6 47.1 58.5 22.9 35.4 41.7 33.3 41.7 50.0 16.7 16.7 17.0 Mauritius 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30.0 38.6 50.4 Mozambique 47.1 43.4 58.6 66.7 66.7 66.7 43.8 20.8 45.8 7.4 9.0 14.8 Nanibia 37.8 67.2 83.7 50.0 75.0 66.7 33.3 66.7 100.0 0.0 0.0 0.0 Niger 55.3 40.5 45.1 64.6 50.0 25.0 62.5 33.3 33.3 0.0 0.0 0.0 Nigeria 42.8 51.0 51.7 33.3 33.3 29.2 16.7 45.8 50.0 19.0 19.2 15.7 Senegal 56.6 53.1 57.1 50.0 50.0 50.0 33.3 33.3 45.8 19.1 19.2 21.6 Seychelles 0,0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14.9 19.4 27.2 Sierra Leone 49.6 30.4 39.0 33.3 18.8 33.3 50.0 35.4 37.5 7.2 6.7 7.2 Somalia 38.4 17.8 26.7 66.7 31.3 16.7 45.8 20.8 29.2 0.0 0.0 0.0 South Africa 57.2 66.0 76.6 85.4 83.3 75.0 29.2 52.1 58.3 32.9 38.8 45.7 Sudan 21.0 22.2 23.1 33.3 33.3 25.0 29.2 37.5 33.3 5.5 5.8 7.5 Swaziland 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18.2 22.6 31.2 Tanzania 55.0 62.6 67.0 56.3 66.7 50.0 58.3 66.7 79.2 9.8 13.3 18.4 Togo 45.2 38.6 50.9 33.3 33.3 33.3 33.3 37.5 50.0 16.7 16.7 17.1 Uganda 38.5 45.6 53.1 50.0 50.0 41.7 16.7 35.4 66.7 5.3 7.6 17.3 Zambia 46.6 60.3 67.6 33.3 56.3 50.0 31.3 41.7 62.5 9.8 11.4 16.2 Zimbabwe . 50. 64.1 67.6 50.01 62.5 50.0 33.3 50.0 66. 25.7 27.7 31.8 Source: Institutional Investors rating, ICRG for Political. Corruption and Rule of law Index Note: scale 0-100 a higher number means less risk 32 TableA8: SSA Privatization Revenues and Foreign Exchange Earned, 1990-1998 (US$i m-llion and vercentage vdues) _ 1990 1991 1992 1993 1994 1995 1996 1997 1998 Total All Developing countries 2716_0 a) 12658 24242 26180 23663 21717 21903 25400 66573 49100 271060 b) 6994 9390 8791 11619 12378 9338 11271 28770 28014 126565 c) 55 39 34 49 57 43 44 43 57 47 Sub Saharan Africa _ a) 74 1121 207 641 605 473 745 2348 1356 7571 b) 38 5 66 566 453 275 299 1969 694 4365 c) 51 0 32 88 75 58 40 84 51 58 Cote d'lvoire __ a) .. 2 10 5 19 74 103 263 94 570 b) 2 10 0 2 41 5 222 91 373 ___________ . 102 101 0 12 56 5 84 97 65 Ghana 1 a) 10 3 15 28 476 87 186 68 21 893 bi 10 2 9 27 399 66 179 64 13 769 cj 96 78 62 95 84 76 96 94 64 86 Kenya a) 12 1 12 10 19 13 137 24 30 258 b) .. .. .. 0 0 0 0 1 __ _ __ _ __ _1 0 0 1 0 Mozambique a) 3 5 9 6 2 26 38 21 29 139 b) 0 0 5 0 1 16 0 .. 12 34 c) 5 0 58 0 25 60 0 43 24 Nigeria ___ a) 16 35 114 541 24 730 b) 0 0 0 500 0 500 c) 0 0 0 92 0 .. 68 South Africa a) _ 1073 122 1287 247 2729 b) .. .. .. .. .. .. 1261 164 1425 c) .. .. .. .. .. .. .. 98 46 Tanzania a) .. .. 3 27 5 77 13 16 111 252 |b) J | r I 1 25 3 69 6 16 77 198 Ic) I 22 94 69 90 48 100 69 78 Uganda a): r - L T 12 19 24 47 30 20 15 167 b) 12 13 21 19 10 44 11 129 c) - .. .. =-98 67 88 40 33 219 74 77 Zambia a) .. .. .. 3 14 69 30 302 409 827 b) .._.._.._2 13 50 25 242 88 420 ci .. .. .. 67 94 72 83 80 21 51 Zimbabwe a) .. .._ .. 13 75 . 110 0 198 b) .. 13 15 .. 27 c) .. .. .. 96 19 .. 14 Source: World bank privatization Database, Note: a) privatization revenue, b) foreign exchange earned on privatization, c) = b/a 33 References Bennell (1995), "British Manufacturing Investment in Sub-Saharan Africa: Corporate Responses During Structural Adjustment", The Journal of Development Studies, vol. 32, no. 2. 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World Bank (1999)," Global Development Finance 1999 ", Washington DC. 36 Africa Region Working Paper Series ARWPS 1 Progress in Public Expenditure Management in Africa: Evidence from World Bank Surveys - January 1999 Chnstos Kostopoulos ARWPS 2 Toward Inclusive and Sustainable Development in the Democratic Republic of the Congo - March 1999 Markus Kostner ARWPS 3 Business Taxation in a Low-Revenue Economy: A Study on Uganda in Comparison with Neighboring Countries - June 1999 Ritva Reinikka, Duanjie Chen ARWPS 4 Pensions and Social Security in Sub-Saharan Africa: Issues and Options -- October 1999 Luca Barbone, Luis-Alvaro Sanchez B. ARWPS 5 Forest Taxes, Government Revenues and the Sustainable Exploitation of Tropical Forests - January 2000 Luca Barbone, Juan Zalduendo ARWPS 6 The Cost of Doing Business: Firms' Experience with Corruption in Uganda - June 2000 Jacob Svensson ARWPS 7 On the Recent Trade Performance of Sub-Saharan African Countries: Cause for Hope or More of the Same August 2000 Francis Ng, Alexander]. Yeats Headquarters 1818 H Street, NW. Washington, D.C. 20433, USA Telephone: (202) 477-1234 Facsimile: (202) 477-6391 RCA 248423 WORLDBK Cable Addr.: INTBAFRAD WAHINGTONDC Working Paper Series web address: http://www.worldbank.org/afr/wps/index.htm European Office 66, avenue d'lena 75116 Paris, France Telephone: (1) 40.69.30.00 Facsimile: (1) 40.69.30.66 Telex: 640651 Tokyo Office Fukoku Seimei Building, 10th Floor 2-2-2 Uchisaiwai-Cho Chiyoda-Ku, Tokyo 100-0011 Japan Telephone: (81-3) 3597-6650 Facsimile: (81-3) 3597-6695 Telex: 26838 The World Bank