Driving Factors Of FDI Inflows In African Developing Countries

The central objective of this paper is to uncover the factors that may significantly motivate foreign investors to invest in Africa. In fact, the research serves two purposes: to provide crucial information to the host countries‘ policymakers about Foreign Direct Investment(FDI) policies and to give foreign investors a new vision of African markets; it is therefore useful for both parts. For this concern, we have used in our study a panel data of fifteen countries selected within the block of the middle income countries(MICs) in Africa; the data covers the period 1990-2013. Net FDI inflows(% of GDP) have been used as the dependent variable whereas openness, market size, political stability, agglomeration effect, infrastructure(proxied by mobile cellular subscribers and internet users per 1000 people) and oil exporting,(a dummy variable), have been identified as explanatory variables. We processed data by STATA and ran regressions using four types of methods: pooled OLS, fixed effect, random effect and FGLS. Our estimation results from crosscountry regressions for the period 1990-2013 indicate that only the coefficient of market size is negative from all the results. Relying on FGLS model: openness, agglomeration, political stability and oil have a positive and highly significant impact on FDI inflows whilst proxies for infrastructure, although positive, were not found strong enough to drag FDI inflows in to African developing countries. Therefore, we conclude that foreign investors are more sensitive to some factors than others as they intend to invest in Africa. Empirically, these findings imply that liberalization and political reform, both known as FDI active policies, need further improvement to create an accessible and a secure environment for investors. Oil for exporting countries has to be an opportunity to channel investors not only to the oil industry but also to any economic sector. We also advise that more information must be disseminated to convince investors that, ultimately, Africa is becoming one of the best places for FDI.