FDI Needs Careful Choices

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By Wezi Tjaronda WINDHOEK Although foreign direct investment has been dwindling over the years, an economic expert has advised Namibia to be selective with the FDI the country attracts. Faced with a high unemployment rate of over 35 percent, poverty as well as a high Gini-Coefficient, Namibia should attract FDI that would help solve its current pressing problems, Unam lecturer Professor Sylvanus Ikhide said. Although FDI is expected to help stimulate domestic investments and enhance growth, this expectation may not have been fully realized in Namibia, he said. Given that multi-national companies may not actively plough back their profits into the domestic economy, Ikhide suggested that Namibia should focus on alternative strategies to get the required growth instead of waiting for companies to stimulate the process of industrialization and development. The key focus for Namibia should be improving infrastructure, human resources, developing local entrepreneurs and creating a stable macro-economic environment. “Once the pace of development picks up, by harnessing and deploying domestic resources towards this end, FDI will probably flow by itself and help in carrying the process forward,” he said. Ikhide told the 8th Annual Bank of Namibia’s Symposium yesterday that the country should focus on FDI that creates backward linkages such as manufacturing. The symposium was held under the theme “The Assessment of Foreign Investment versus Domestic Investment”. Statistics indicate that investment flows into Namibia have declined from N$4.85 billion in 2001 to N$546 million in 2003, while deteriorating further in 2005. Namibia Investment Centre Executive Director, Bernadette Artivor, said while the NIC projected to facilitate N$1.5 billion and N$2 billion for 2004 and 2005 respectively, it could only garner N$202 million and N$620 million for 2004 and 2005. The past five years have seen Namibia attracting FDI amounting to N$2 billion while capital outflows stemming from portfolio investments over the same period amounted to N$4.7 billion. This is happening at a time when FDI inflows into developing countries is low, with Asia accounting for 62 percent of the estimated 31 percent world inflows, while Africa attracts only 8 percent. Since 1996, Namibia has seen the largest portion of FDI in the manufacturing and financial services sectors, with small percentages in agriculture and manufacturing. This, said Ikhide, may have compromised the impact of the investments on backward linkages, as lop-sided investment distribution of FDI does not contribute to growth and is not pro-poor. “The poor do not participate in the economic opportunities of mining but bear the costs and the risks when a mine is situated in the community,” said Ikhide. If FDI goes into mining and financial services, it does not generate a lot of employment opportunities and it displaces local investments. FDI should promote domestic supplies in a country and come to a point where multi-national enterprises promote domestic investment, said Ikhide, giving an example of Ramatex Textile Company, which could have invested in cotton production in the Kavango region. Namibia has however slipped in its rankings on both the technology and human capital index, which are both important if the county is to attract meaningful amounts of FDI. The economist said, “If our technological and human capital indices have been declining you can’t talk of FDI contributing to economic growth.” The bank organised the symposium to find answers to concerns over whether the country has been promoting FDI at the expense of domestic investment and also whether there is a deliberate policy biased towards the promotion of FDI at the expense of domestic investment. Artivor disagreed with the notion that the promotion of FDI comes at the expense of domestic investment, as both were high on the government’s priority list. “Namibia has put in place the required institutions, policy and legal frameworks conducive for not only attracting FDI but also for encouraging domestic investors and promotion of the development of the private sector,” she said, citing the export processing zone regime, special incentives for manufacturers and exporters, small and medium enterprises development and the Credit Guarantee Fund, among many others. Some of the ways in which FDI is beneficial to a country include generating wealth, creating job opportunities, development of technical and managerial skills, stimulating the growth of local enterprises whose products foreign companies consume and also increasing the level of exports instead of selling raw materials. According to BoN Deputy Governor, Paul Hartmann, some of the bottlenecks that prevent FDI from stimulating economic growth are institutional weaknesses in developing countries to absorb FDI and the competitiveness problems of domestic firms compared to their foreign counterparts. Owing to this, Hartmann said Namibia should establish a broad, transparent and effective enabling environment for both foreign and domestic investment, for the country to spur economic growth, create employment and reduce poverty.