By Badru Walusansa
The cost of doing business is relatively low for Foreign Direct Investment (FDI) in Africa notwithstanding corruption as one of the major deterrents to FDI. A recent study conducted by Vilnus University enunciated that corruption has continued to derail the inflow of FDI into many African countries. At the broader scale, the 2022 Corruption Perception Index (CPI) by Transparency International sadly revealed that Africa had consecutively stagnated in the corruption fight with 44 of the 49 countries surveyed scoring below 50 percent.
Leaving other factors constant, the implication is that if the CPI metric is to be used as a determinant for FDI, many African countries would be a high risk investment. In fact this would stress the already constrained FDI inflow in Africa which among other factors dramatically declined from $80 billion in 2021 to $45 billion in 2022 as reported by UNCTAD World Investment Report 2023.
The manifestation of corruption involved in setting up FDI in Africa includes but not limited to solicitation of bribes by power brokers and or middlemen who are often times connected to white-collar elites responsible for awarding operating licenses and investment permits. In some instances the appetite for bribes from such elites comes with unrealistic demands which can hardly be met by the foreign investors. This in turn makes the investment climate acutely complex for foreign investors hence shifting to low risk corrupt countries. Unfortunately in such instances, the host country is stripped off a myriad of opportunities yet FDI is a potential catalyst for job creation and industrialization of Africa
One of the pockets of corruption in the country’s business eco-system is the “human factor.” It’s therefore inevitable for corruption to thrive where clearance of businesses whether foreign or local, is solely left in the hands of gate-keepers. Conversely, this problem can be remedied through adoption of e-government services so that the human factor is minimized. It’s therefore imperative for African governments to embrace digital transformation policies to reinforce the existing legal regimes against corruption. African countries such as Ghana, Kenya, Nambia and Rwanda could offer good case studies, especially where their digital migration policies have translated into reduction of business-driven corruption.
Similarly, the International Monetary Fund (IMF) argues that e-government can facilitate FDI inflows in the host country through cost and time reductions and associated efficiency gains. That is, implementing e-government services improves the effectiveness of the internal functions and processes of government services by linking different government departments and agencies into a one-stop site. However, and most importantly if e-government services are not backed up by strong anti-corruption legal policies and political will, business corruption may not be whipped out completely. This is because middlemen and politicians can still circumvent the e-government systems and seek bribes from investors.
Additionally, continental and regional business forums where foreign investment bodies often meet with African governments to share experiences and challenges could also help to diagnose the extent at which the malaise of corruption has affected FDI on the African continent. There also lies a great opportunity in developing and implementing Whistleblower protection policies – these will encourage reporting of corruption by foreign investors to the responsible anti-corruption bodies within the host countries.
Whereas it’s also true that in some instances, foreign investors fuel corruption as a way of greasing and circumventing the bureaucratic business processes in many host countries, this in itself has dire consequences that actually makes corruption uglier. First of all, where corruption grind the wheels of business processes in favor of foreign investors, the host country is at the risk of losing out on tax revenues, and also bound to suffer from the ripple effects of non-compliance with the indigenous legal regime. In fact, going by the school of thought which asserts that corruption is beneficial to FDI is not only disingenuous, but also, inward looking since the benefits outweigh the social good.
The Author is a Policy Analyst at Development Eye Initiative (DEI)
