Original Research

Profiling sectoral risks of foreign direct investment (FDI) in Africa for the first decade of the 21st century

Zahné Coetzee, Henri Bezuidenhout, Carike Claassen, Ewert Kleynhans
Journal of Economic and Financial Sciences | Vol 9, No 1 | a35 | DOI: https://doi.org/10.4102/jef.v9i1.35 | © 2017 Zahné Coetzee, Henri Bezuidenhout, Carike Claassen, Ewert Kleynhans | This work is licensed under CC Attribution 4.0
Submitted: 18 December 2017 | Published: 10 March 2016

About the author(s)

Zahné Coetzee, School of Economics, North-West University, South Africa
Henri Bezuidenhout, School of Economics, North-West University, South Africa
Carike Claassen, School of Economics, North-West University, South Africa
Ewert Kleynhans, School of Economics, North-West University, South Africa

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Abstract

Despite Africa’s strong foreign direct investment (FDI) performance since 2000, the majority of FDI inflows have been directed to a few selected countries. As investors face many risks when investing in developing countries, it is argued that risk perception plays a vital role in the FDI inflows into Africa. This article focuses on the relationship between risk and FDI. A structural equation model is used to analyse this relationship with a dataset of ten risk categories and FDI data from 42 African countries. The study focuses on four sectors, namely metals, automotive, communications and real estate. Overall, results indicate that government effectiveness and legal and regulatory risks produce the biggest concern for investors. The conclusion is that each sector’s risk pattern regarding FDI differs. The most important empirical results indicated that African countries should focus more on government effectiveness, stability and transparency to attract the levels of FDI required to stimulate economic growth.

Keywords

Foreign direct investment; Africa; risk; structural equation modelling; industries; manufacturing; services

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