Posted: Friday 4th July 2014 at 13:26 pm

African Government can boost investment through trade negotiations

UNCTAD



Accra, July 3, GNA – The Economic Development in Africa Report 2014 has urged African governments to have a coherent approach to the various trade negotiations and agreement they have engaged in, to ensure the outcomes are mutually supportive of economic transformation and development on the continent.  

The report, which was launched in Accra on Thursday by Third World Network, on behalf of the United Nations Trade and Development (UNTAD), noted that African countries can also boost investment through fostering international trade.

On the theme, ‘Catalysing Investment for Transformative Growth in Africa,’ the report looks at the key determinants of investment in Africa; similarities and differences in the composition and characteristics of investment across African countries; and how productive investment in Africa has been over the past two decades.

It also considered how investment can be directed to strategic sectors of African economies to ensure that growth is accompanied by diversification and structural transformation.

Other areas covered are: modalities for African Countries to strengthen linkages between investment by local and foreign firms, and what policy measures are needed to catalyse investment for transformative growth in Africa.

The report underscored the need for the international community to grant African countries more market access, particularly in areas such as agriculture, where they currently have a comparative advantage.

It however said enhanced market access would be of benefit to African countries only if they have productive capacity to take advantage of the opportunities arising from such market access.

It also stressed the need to build productive capacities in Africa and also for better information sharing on available market access opportunities for African Entrepreneurs to take advantage of.

‘Access to a larger market through trade will allow African countries to exploit economies of scales associated with producing for a larger market, thereby enhancing their competitiveness and stimulating investment,’ it added.

It pointed out that high international trade costs have a negative impact on trade and investment in Africa and recommended that the international community provide financial and technical support to African countries to enable them to implement the agreement on trade facilitation adopted by the World Trade Organization members in Bali in December, 2013.

On using aid to stimulate investment, the report underscored the need for more aid to be channeled to the productive sectors to build productive capacities on the continent.

It further argued that aid can have a more positive impact on development in Africa, if it is geared more towards stimulating through using it as a guarantee mechanism to reduce the risks faced by lenders and investors.

It therefore encouraged development partners to use more aid to lift infrastructure constraints, particularly in energy and transport, as was recently done by the United States through the Power Africa Initiative.

Strengthening linkages between local and foreign enterprises, the report noted that, although African counties experienced a significant increase in Foreign Direct Investment (FDI) flows to the continent over the past decades, there were concerns that the developmental impact had been limited due in part to weak linkages between foreign and local enterprises.

It argued that the lack of availability of adequate infrastructure and skilled labour, low absorptive capacity, policy incoherence, and the lack of a vibrant domestic private sector are some factors that are responsible for the weak linkages between local and foreign enterprises in Africa.

The report, therefore, recommended to African governments to create and strengthen linkages through developing and improving workforce skills, as well as raising the absorptive capacity of local firms through the imposition of technology transfer requirements on FDI.

It also stressed on the need to promote joint ventures between local and foreign enterprises and to make FDI policy consistent with the promotion of domestic entrepreneurship and not to promote FDI in a manner that discriminate against local investors.  

‘Furthermore, if incentives are to be used to promote FDI, they should be used mainly for attracting new investments in activities where a country cannot attract investors without such incentives,’ it suggested.

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