SUB-SAHARAN AFRICA AND DEVELOPMENT FINANCE
by Mr. Bolaji Owasanoye
(Article Reference: Document No.6, July 1999)

Private Capital Flows

Private capital flows to developing countries represent an important supplement to official finance available for investment. In 1997, emerging markets of developing countries enjoyed a boom one half of the year but suffered decline in the second half of the year due to the financial crisis in Asia. Whereas the industrialised countries were able to recover from the decline quickly, due to several economic shock absorbers in-built in their systems, the recovery of affected developing economies was not so rapid.

Of all the available private capital flows instrument available i.e. loans, bonds, portfolio equity and foreign direct investment (FDI), the latter represented the largest source of finance to developing countries. It has been said that FDI flows to developing countries increased due to three factors. Firstly due to liberalisation of the economies of some of these countries particularly through privatisation, secondly, strong growth in the GDP and trade of the major developing country recipient of FDI flows and thirdly, falling cost and rising quality of communication and transportation services which encouraged private corporations to shift towards an integrated global investment and production. In the growth of FDI, the role of multinational corporations stands out.

Unfortunately, however, sub-Saharan Africa hardly featured in the boom which private capital flows portended in the recent past. As revealed by the World Bank -

"many small, poor countries (especially in Africa) receive little foreign investment, often because of an unfavourable business environment, poor policies, unstable government, civil strife, weak infrastructure, poorly trained work force or small domestic market"[16].

In effect, SSA does not have much to look forward to in this area if the above mentioned problems persist. The following table on FDI flows is instructive.

FDI Flows to the top ten recipient developing countries, 1991,1994, and 1997
(billions of U.S. dollars)

Country	1991	Country	1994	Country	1997
Mexico	4.7	China	33.8	China	37.0
China	4.3	Mexico	11.0	Brazil	15.8
Malaysia	4.0	Malaysia	4.3	Mexico	8.1
Argentina	2.4	Peru	3.1	Indonesia	5.8
Thailand	2.0	Brazil	3.1	Poland	4.5
Venezuela	1.9	Argentina	3.1	Malaysia	4.1
Indonesia	1.5	Indonesia	2.1	Argentina	3.8
Hungary	1.5	Nigeria	1.9	Chile	3.5
Brazil	1.1	Poland	1.9	India	3.1
Turkey	0.8	Chile	1.8	Venezuela	2.9
Top ten share in FDI to all developing countries (percent)
	74.2		76.1		72.3
Source: World Bank - Global Development Finance p.20

In the table above showing ten top FDI recipients developing countries, for 1991,1994 and 1997, it is revealed that only Nigeria featured from SSA for 1994 and this was attributed to her endowment in the natural resources sectors[17]. It is apparent, that large scale privatisation programmes account for a significant portion of FDI flows but many SSA countries are wary of the privatisation route due to a number of factors including fear of the control of strategic sectors like power or petroleum in the hands of foreigners, creation of private as opposed to public monopolies, the implication of foreign dependence in privatisation, internal disagreement on spread and ownership of shares of what are regarded as national assets, etc. Because the existing models of privatisation have not returned uniform statistics of its benefit it is not clear to many SSA countries which route to follow.

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[16] see generally Chapter One of Global Development Finance, op cit.

[17] ibid at p.20.


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