DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN SELECTED SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC) FOR THE PERIOD 2001 to 2010
Date
2014-05-06
Authors
MUTUNGWAZI, HAPPY
Journal Title
Journal ISSN
Volume Title
Publisher
University of Zimbabwe
Abstract
The Southern African Development Community (SADC) regional bloc has been undertaking
investment reforms with a view of creating an enabling and conducive environment for all
their member states to increase Foreign Direct Investment (FDI) inflows. FDI is preferred to
because of its arguable economic benefits among them that it closes domestic resource gaps.
Furthermore, FDI can reduce unemployment levels common in several SADC nations. FDI
introduces managerial skills through technological transfers, as well as producing export
enhanced economic developments. In view of the foregoing, many SADC countries have
promulgated various policies that can incentivise foreigners to pour FDI inwards. Despite
these efforts, studies have shown that FDI levels are dismally low as compared to the rest of
Africa. Efforts to establish the reason for such poor FDI inflows have been extensively
carried out in many studies. However, these studies omit some recent key noneconomic
determinants that affect FDI inflow to the SADC bloc. This study analyses the determinants
of FDI inflow to the SADC bloc for the recent decade of 2001 to 2010 using the panel data
methodology. Our study estimated macroeconomic determinants of FDI in the SADC region
namely: rates of interests, current account balances, gross domestic product, national
external debt, and exchange rates as well as institutional determinants of FDI namely:
political stability, control of corruption and voice and accountability issues. Interest rates,
exchange rates, and gross domestic product variables were all found to be important
determinants of FDI in the region. All institutional variables were proved to be essential
determinants of FDI in the SADC bloc. The study concluded that SADC FDI inflows are
positively influenced by a growing demand in terms of an expanding SADC bloc coupled with
a stable single currency exchange rate. Policies that advocate for a bigger integrated
common economy and the adoption of single currency are the best way in attracting large
FDI inflows to SADC. SADC states should, in addition pursue policies that take into
considerations the effective uphold of political stability and absence of violence, measures to
nip out corruption and a tolerant governance structure. The unstable macroeconomic
environment obtaining in many SADC states such as high interest rates are negatively
affecting FDI inflows to the region.