AFRICAN COUNTRIES, FOREIGN DIRECT INVESTMENT AND ECONOMIC CHANGE IN AFRICA

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BACKGROUND

The transfer of environmentally sound technologies (ESTs), particularly from industrialised countries of the North to developing countries such as those of Africa, has become a key issue in foreign policy and development circles. Since the late 1980s and early 1990s, developing countries in general, and African countries in particular, have put more currency on issues of EST transfer for the purposes of securing sustainable development. These countries have often argued for cost-effective ways of EST transfer, including through foreign direct investment (FDI) and development assistance. FDI has overtaken the volume of development assistance and many countries are finding FDI a more secure way to finance sustainable development. Internationally, the FDI activities of transnational corporations (TNCs) are enabling some countries to reap much greater benefits than those associated with international trade. As such, the Organisation for Economic Development and Co-operation (OECD) notes that (1992: 209) “… today, FDI in manufacturing and services rather than trade is leading internationalisation and is influencing strongly international location patterns for the production and exchange of goods and services”. Generally, FDI can be considered as “not just the purchase of a sizable share in a company but, more importantly, the actual exercise of control and management” (Razin et al. 1997: 6), and there are a number of perspectives on its benefits to firms, as well as to home and host economies. Anyangah (2010: 458) observes that FDI “allows the investor to make a direct contribution towards the production process”. Sawada (2005: 7) also contends that “FDI to developing countries does not only bring financial resources for capital formation but also technology. FDI provides direct technology transfer from the parent firms to their affiliates in developing countries”.
Likewise, the World Bank (1993: 1) notes that “FDI brings with it considerable benefits: technology transfer, management know-how, and export marketing access”, and Chowla (2005: 1) comments that “FDI can infuse capital into an economy, create jobs, and can be a vehicle for transferring and upgrading technology”. Whilst it is generally agreed that technologies can be diffused through a variety of channels, for Damijani and others (2003: 190) FDI is attractive because “it provides, arguably, the most important and cheapest channel of direct technology transfer to developing countries”. Anyangah (2010: 458) noted three positive benefits that may accrue when using FDI as a vehicle for transferring technology. First, FDI can improve the project’s financial prospects by increasing the efficiency with which resources are used. Second, in some instances FDI can enable developing countries to acquire scarce organisational skills. And finally, the financial and managerial inputs, if effective, naturally bring about greater productivity as they are an important factor in any production process. However, it is important to point out that contextual factors, as well as the nature and content of FDI determine its impact in a given setting, specifically the types of technologies it transfers. Hence, FDI-carrying ESTs in the African context need to be investigated.

THE PROBLEM-IN-CONTEXT

In the African context, as evidenced in national and continental policy documents and development plans, FDI has been recognised as an important mechanism to transfer technologies. However, African policy-makers do not have access to a wide variety of empirical evidence on how to realise the transfer of technologies through FDI. Therefore, African knowledge and understanding of how FDI transfers technologies is rather limited. The problem is compounded even further by the complexities involved in the process of technology transfer. The United Nations Conference on Trade and Development (UNCTAD) states that “technology transfer, in general, includes both ‘hardware’ elements, such as machinery and equipment, and ‘software’ elements, such as skills, know-how and related organisational and institutional arrangements for the transfer process” (1997: 3). The diversity of technology elements/components raises some questions about whether FDI transfers all these components completely as a once-off, or partially transfers only some of them and excludes others. Studies on FDI and the transfer of technologies available to African policy-makers have arrived at mixed findings on the efficacy of FDI as a vehicle for transferring technologies.
This, therefore, means that they may be of little relevance in providing clear policy directions. In an assessment of available policy literature, Rodrik (1999: 37) concludes that “… today’s policy literature is filled with extravagant claims about positive spill-overs from FDI, but the hard evidence is [rather] sobering”. Whilst the World Bank (1993: 1) states that “many developing countries will need to be more effective in attracting FDI flows if they are to close the technology gap with high-income countries, upgrade managerial skills, and develop their export markets”, Blalock and Gertler (2002: 2) caution that this and other claims that seem to identify multiple positive benefits from FDI “have encouraged developing countries to adopt costly programmes, such as tax holidays, subsidised industrial infrastructure, and duty exemptions, to attract multinational enterprises”. Noteworthy is that these dialectics in the existing policy literature do not necessarily lead to any clear, verifiable proof that can be used in evidence-based policy- making, charting clear-cut directions for technology transfer through FDI. In addition, policy-makers on the continent are faced with a lack of conceptual frameworks or apparatuses on how exactly FDI transfers technologies.
This has caused some policy-makers responsible for negotiating FDI inflows into African countries to adopt a reductionist approach, depending on their training and skills background. For example, if policy-makers have been trained in Economics they would focus on the economic benefits of FDI and not on the other technology-transfer and environmental dimensions. In such cases, the general tendency has been to look at FDI as the flow of capital and not a bundle of resources that affect economies in a multidimensional way, including its effects on the environment and sustainable development. Whilst there has been a lack of understanding about the efficacy of FDI as a vehicle for transferring technologies on the African continent, there is an even more limited knowledge on how environmentally sound technologies (ESTs) can be transferred through FDI. ESTs, unlike other technologies, exhibit three characteristics that make them peculiar and, therefore, suitable to be studied on their own. First, ESTs are generally designed, developed and diffused with an awareness of their positive impact on the environment, thus necessitating a conscious process of ‘environmental technological change’ which does not usually apply to other general technologies. Environmental technological change refers to “new or modified processes, techniques, practices, systems, and products to avoid or reduce environmental harms” (Beise and Rennings 2005: 6).
This definition broadly encompasses both ‘end-of-pipe’ and cleaner technologies. Whereas ‘end-of-pipe’ technologies are devices added at the end of the production process, which allow firms to comply with environmental requirements, do not require changes in production processes, and are relatively easy to purchase and install (Murphy and Gouldson 2000), cleaner production technologies reduce environmentally harmful impacts at the source by substituting or modifying less-clean technologies (Frondel et al. 2007). Second, ESTs can be viewed as suitable for meeting the developmental needs of many developing countries, especially those of Africa, as they reduce harmful effects on the environment. Hence, the successful acquisition and adaptation of ESTs from both external and internal sources, as well as the ability to create new technology, are critical factors in realising the sustainable development of African countries. But as many African countries do not possess national technological capability, it becomes evident that the transfer of ESTs from abroad is the most important potent source for these technologies. As observed by Fabayo (1996: 358), “the incapability of the African continent, like the other developing regions of the world to source needed modern technological resources for development and the environment locally, has made dependence on offshore sources inevitable”.
Third, unlike other technologies, the transfer of ESTs is described in, and supported by, certain international instruments. UNCTAD (2001: 2) states that in the area of environmental protection and sustainability some international instruments have imbedded the transfer of ESTs with built- in implementation mechanisms, including the requisite financial provisions and monitoring arrangements. It identifies several international agreements or treaties that have provisions for the transfer of ESTs to developing countries, amongst others, the Vienna Convention for the Protection of the Ozone Layer (1985), the Montreal Protocol on Substances that Deplete the Ozone Layer (1987), the United Nations Framework Convention on Climate Change (UNFCCC, 1992), Agenda 21 of the United Nations Conference on the Environment and Development (UNICED, 1992), and the Kyoto Protocol to the UNFCCC (1997). These international agreements or treaties explain the necessity for both public and private financing mechanisms for the transfer of ESTs. Yet, African countries have overemphasised developing new mechanisms for regulating FDI, instead of fully utilising the existing instruments.

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TABLE OF CONTENTS :

DECLARATION
ACKNOWLEDGEMENTS
ABSTRACT
ABBREVIATIONS/ACRONYMS
CHAPTER 1: INTRODUCTION
- 1.1 BACKGROUND
- 1.2 THE PROBLEM-IN-CONTEXT
- 1.3 RATIONALE FOR THE STUDY
- 1.4 THE RESEARCH AIM AND RESEARCH QUESTIONS
- 1.5 THE RESEARCH DESIGN AND METHODOLOGY
  - 1.5.1 Research Approach and Research Methodology
  - 1.5.2 Limitations of the Study
- 1.6 SIGNIFICANCE OF THE STUDY AND CONTRIBUTION TO KNOWLEDGE
- 1.7 STRUCTURE OF THE RESEARCH
CHAPTER 2: LITERATURE REVIEW AND THE LOGIC FOR A CONCEPTUAL FRAMEWORK
- 2.1 INTRODUCTION
- 2.2 KEY CONCEPTS DEFINED: FDI, TECHNOLOGY TRANSFER, AND ESTs
  - 2.2.1 Foreign Direct Investment (FDI)
  - 2.2.1.1 Definitions of FDI
  - 2.2.1.2 Types and Classification of FDI
  - 2.2.2 Technology and the Transfer of ESTs
  - 2.2.2.1 Definitions of Technology
  - 2.2.2.2 Definitions of Environmentally Sound Technologies
  - 2.2.2.3 Definitions of Technology Transfer
  - 2.2.2.4 Technology Transfer Classifications
  - 2.2.2.5 Mechanisms, Channels and Modes of Technology Transfer
- 2.3 THE FDI-TECHNOLOGY TRANSFER NEXUS
  - 2.3.1 A Complex Discourse
  - 2.3.2 The Processes of FDI and Technology Transfer
  - 2.3.2.1 FDI and Technology Transfer: Host Country Conditions and Effects
  - 2.3.2.2 FDI and Technology Transfer: Home Country Conditions and Effects
  - 2.3.3 FDI and the Environment
  - 2.3.3.1 Costs and Benefits to the Environment
  - 2.3.3.2 FDI and the Transfer of Environmentally Sound Technologies
- 2.4 LOCATING THE STUDY IN THE FDI-TECHNOLOGY SCHOLARSHIP
- 2.5 CONCLUSION
CHAPTER 3: THE CONCEPTUAL FRAMEWORK OF THE STUDY
- 3.1. INTRODUCTION
- 3.2 DISCIPLINES UNDERPINNING THE CONCEPTUAL FRAMEWORK
  - 3.2.1 FDI and the Transfer of ESTs in Economics
  - 3.2.2 FDI and the Transfer of ESTs in International Relations
  - 3.3 THEORIES AND CONCEPTS IN THE FRAMEWORK
- 3.3.1 The Interdisciplinary Nature of FDI and the Transfer of ESTs
  - 3.3.2 Theoretical Building Blocks for the Conceptual Framework
  - 3.3.2.1 National Institutions, FDI and the Transfer of ESTs
  - 3.3.2.2 Regimes, FDI and the Transfer of ESTs
  - 3.3.2.3 International Organisations, FDI and the Transfer of ESTs
  - 3.3.2.4 Nested Institutions, Regimes and Rules
- 3.4 THE SCIGID FRAMEWORK
- 3.5 CONCLUSION
CHAPTER 4: AFRICAN COUNTRIES, FOREIGN DIRECT INVESTMENT AND ECONOMIC CHANGE IN AFRICA
- 4.1 INTRODUCTION
- 4.2 THE CONTEXT OF FDI IN AFRICA
  - 4.2.1 FDI Inflows to Africa
  - 4.2.2 Outward FDI from Africa
- 4.3 THE EXERCISE OF SOVEREIGNTY PRINCIPLES
  - 4.3.1 Explicit Policies and Direct Institutions for FDI in Africa
  - 4.3.2 Implicit Policies and Indirect Institutions for FDI in Africa
- 4.4 GOVERNMENT-IMPOSED DISTORTIONS ON MARKETS/FDI IN AFRICA
  - 4.4.1 FDI Incentives in Africa
  - 4.4.2 Government-Induced Barriers to FDI in Africa
- 4.5 STRUCTURAL POWER AND FDI IN AFRICA
- 4.6 DIRECTING FDI TO PROMOTE ECONOMIC CHANGE IN AFRICA
- 4.7 CONCLUSION
  - 2.3.3 FDI and the Environment
  - 2.3.3.1 Costs and Benefits to the Environment
  - 2.3.3.2 FDI and the Transfer of Environmentally Sound Technologies
- 2.4 LOCATING THE STUDY IN THE FDI-TECHNOLOGY SCHOLARSHIP
- 2.5 CONCLUSION
CHAPTER 3: THE CONCEPTUAL FRAMEWORK OF THE STUDY
- 3.1. INTRODUCTION
- 3.2 DISCIPLINES UNDERPINNING THE CONCEPTUAL FRAMEWORK
  - 3.2.1 FDI and the Transfer of ESTs in Economics
  - 3.2.2 FDI and the Transfer of ESTs in International Relations
- 3.3 THEORIES AND CONCEPTS IN THE FRAMEWORK
  - 3.3.1 The Interdisciplinary Nature of FDI and the Transfer of ESTs
  - 3.3.2 Theoretical Building Blocks for the Conceptual Framework
  - 3.3.2.1 National Institutions, FDI and the Transfer of ESTs
  - 3.3.2.2 Regimes, FDI and the Transfer of ESTs
  - 3.3.2.3 International Organisations, FDI and the Transfer of ESTs
  - 3.3.2.4 Nested Institutions, Regimes and Rules
- 3.4 THE SCIGID FRAMEWORK
- 3.5 CONCLUSION
CHAPTER 4: AFRICAN COUNTRIES, FOREIGN DIRECT INVESTMENT AND ECONOMIC CHANGE IN AFRICA
- 4.1 INTRODUCTION
- 4.2 THE CONTEXT OF FDI IN AFRICA
  - 4.2.1 FDI Inflows to Africa
  - 4.2.2 Outward FDI from Africa
- 4.3 THE EXERCISE OF SOVEREIGNTY PRINCIPLES
  - 4.3.1 Explicit Policies and Direct Institutions for FDI in Africa
  - 4.3.2 Implicit Policies and Indirect Institutions for FDI in Africa
- 4.4 GOVERNMENT-IMPOSED DISTORTIONS ON MARKETS/FDI IN AFRICA
  - 4.4.1 FDI Incentives in Africa
  - 4.4.2 Government-Induced Barriers to FDI in Africa
- 4.5 STRUCTURAL POWER AND FDI IN AFRICA
- 4.6 DIRECTING FDI TO PROMOTE ECONOMIC CHANGE IN AFRICA
- 4.7 CONCLUSION
- 7.2 COMPARATIVE REFLECTIONS BASED ON THE SCIGID FRAMEWORK
  - 7.2.1 The Exercise of Sovereignty Principles
  - 7.2.2 Government-Imposed Distortions
  - 7.2.3 The Use of Structural Power
- 7.3. A COMPARATIVE REFLECTION ON HOW STATES DIRECT FDI FLOWS
  - 7.3.1 A Reflection on the Empirical Evidence
- 7.3.2 Accounting for the Differences in How States Direct FDI Flows
- 7.4. FDI FLOWS AND THE TRANSFER OF ESTs
  - 7.4.1 FDI and Transfer Technologies in General
  - 7.4.2 FDI and the Transfer of ESTs
- 7.4 IMPLICATIONS FOR POLICY-MAKING AND IMPLEMENTATION
  - 7.4.1 Implications for the State
  - 7.4.2 Implications for FDI and FDI Policy
  - 7.4.3 Implications in Technology Transfer, including the Transfer of ESTs
  - 7.4.4 Technological Capabilities and Capacity-Building
- 7.5 CONCLUSION
CHAPTER 8: CONCLUSIONS
- 8.1 INTRODUCTION
- 8.2 OVERVIEW OF THE RESEARCH
- 8.3 SUMMATIVE RESEARCH FINDINGS
- 8.4 SOME POLICY RECOMMENDATIONS
- 8.5 CHALLENGES EXPERIENCED DURING THE COURSE OF THE RESEARCH
- 8.6 RECOMMENDATIONS FOR FUTURE RESEARCH
- 8.7 CONCLUSION
- BIBLIOGRAPHY