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Determinants of Foreign Direct Investments in Sub-Saharan Countries
Studies carried out by several researchers disclosed that Sub-Saharan countries had some of the slowest growing economies in the world. In order for the nations and development partners to eradicate poverty, foreign direct investments became a significant. Foreign direct investments were necessary in filling the resource gap realized as a result of low savings and income levels and refusal of assistance by developed nations in the 1990s. In order to attract foreign direct investments, the following determinants were necessary.
Foreign Direct Investments in Sub-Saharan nations were highly dependent on infrastructural development. Studies on the impact of infrastructure on foreign direct investments revealed that telecommunication infrastructures, economic developments and transparency had significantly boosted inflow of foreign direct investments in these nations. On the other hand, transport and communication infrastructure enhanced accessibility and lowered transportation costs. This meant that foreign-owned firms could benefit from these as they did not have to fund such project. This, in effect, led to reduced costs of production thereby attracting foreign direct investments.
Human Resources Development, Productivity and Cost
Studies had shown that improvement in human resource development and subsequent reductions of production costs positively spurred foreign direct investments inflow to Sub Sahara. Foreign direct investments policy discouraged investors from investing in sectors that discriminated against foreigners compared to local investors. The studies also revealed a strongly positive relationship between progress in human resource development and foreign direct investments when the levels of corruption were low. Knowledge and human capital formed the most significant determinants of inflow of foreign direct investments and that investments had a direct correlation to the level of education, openness of the economy and macroeconomic performance variables such as risks and inflation. Other human resource factors that determined the level of foreign direct investments inflow in Sub Saharan region included life expectancy and population health.
Availability of Natural Resources
Availability of natural resources had an impact on attracting foreign direct investments. Sub Saharan nations with significant mineral deposits and large markets drew more foreign direct investments than countries with no natural resources.
Investment Climate, Institutional Variables and Political Climate
Better institutions had a positive impact on foreign direct investment. Above all, political instability, volatility of policies, laws and regulations, corruption, lack of transparency and assurance and unwarranted regulatory burden discouraged foreign direct investments. The markets performed effectively and drew foreign direct investments in countries that had secure property rights, were politically stable and had low levels of corruption.