Impact of FDI on West African Economies: A Critical Review

Abstract

Many nations of the world especially developing ones have grown in their dependence on foreign direct investment (FDI) as one of the key means of spurring their economic growth. Foreign direct investment to Africa and for that matter West Africa has been on the slide. In the 1970s, Africa including West Africa enjoyed a quarter of all foreign direct investment to developing nations. However, as the years progressed, this proportion began to decline, rather steeply to the extent that in 1992, the continent accounted for only 5.2 %. Could it be that FDI inflow into Africa and for West Africa in particular is declining because investors are not really seeing the impact of their investments because the economies of host countries are not significantly growing in spite of the FDI inflows? The study therefore sought to ascertain the impact of FDI on West African economies using secondary data such as GDP growth and inflation rates. The study employed a mix of both qualitative and quantitative methods. Findings from data analysis strongly suggested that regardless of the source of FDI, FDI inflows into West African economies may neither result in significant economic growth or significant reduction in unemployment rates of host countries. This perhaps is so because of host countries' lack of comprehensive policy framework regarding FDI. This situation may also be due to the practice where the foreign direct investors award a huge chunk of the FDI projects to foreign contractors and the fact that expatriates get far better remunerations and benefits than their local counterparts. Furthermore, the study proposed a framework that sought to show the interrelationship between the various components of FDI as identified in the study. It is recommended that West African government develop a comprehensive policy framework with regards to FDI.