FDI, oh FDI

I run the risk of being the fifth person to write a piece on FDI in The New Times within the past week! This kind of attention is indeed called for: the cash is flowing in and Rwanda needs to strongly position its economy to take advantage of it.Africa received its largest share of global FDI in 2011, with FDI projects growing by 27%, according to the BBC. In fact by 2015, FDI inflows are projected to reach $150 billion. Even though FDI is at times viewed as ‘resource imperialism’ with few tangible benefits to Africa, the numbers (GDP) seem to suggest otherwise; in as much as economic growth in Africa has been spurred on by economic reforms, it is also strongly mirrored by a rise in FDI. This kind of investment in infrastructure, and other business activities means that Rwanda cannot afford to miss out.Maintaining equilibrium between foreign investment and domestic interests in a shrinking globalized world seems to be the challenge for most developing economies, Rwanda included. On one hand it is tempting to resort to heavy regulation as a means of protecting domestic interests, and yet this comes at the heavy price of stifling FDI. India is one country that learned this the hard way and liberalized its FDI policy to encourage investments.I still wonder, however, if local companies are in position to go head to head with say, MNCs? The recent call for a code of FDI conduct at the national and continental levels is paramount to protect African economies, after all FDI is not necessarily an automatic ticket to economic growth and can actually hurt fragile retail industries. At the end of the day, Rwanda is left to draw the bridge in a manner that sees economic growth at all tiers.Rwanda benefits from these foreign investments in so many ways. Technology transfer, skills transfer, infrastructure development, job creation; FDI also results in improved quality of goods and services produced in the economy, and therefore boosts export potential (and God knows Rwanda needs that!) At the end of the day, it has to take on a symbiotic relationship: increased FDI flows as an outcome of increased investment by the public sector in economic infrastructure to facilitate further investment by local businesses.And so the question also becomes, is it possible to make investment a two-way street? When I think of companies like Dangote Cement of Nigeria, I see a world of possibilities for Rwandan companies to compete on the global market. Given how limited intra-regional FDI is in Africa, Rwanda can begin there. We could also capitalize on our presence in the EAC to spur higher volumes of intra-region investments as well. That said, Rwanda has its role to play in embracing FDI projects. We are doing well, in terms of the competitiveness of our investment climate and the stability of our political and economic climate. However, maybe focus should be on attracting FDI into areas of comparative advantage such as natural resource activities (drilling methane gas, is one example) as these generally don’t require fiscal incentives to attract these investments. Even more importantly, developing strong regional networks, and accelerating privatization – especially for a country with a relatively small private sector – will most likely prepare the economy better for foreign investments. That said, a toast to Rwanda for increased FDI (shot up to $477 million), and 11,000 jobs created in turn. May those investments keep flowing in!