Foreign direct investment is a main element in international economic integration. It creates a direct, stable and long-lasting link in economies. FDI encourages the transfer of knowhow and technology in countries and allows the country’s economy to promote products in the international markets. It is an additional source of funds for investment and with the right policy it is important to a country’s development. Developing countries have become more aware of the role of Foreign Direct Investment and its role in growing the country’s economy. Foreign investors contribute to a country’s growth by provision of capital and skills. The investors share the risks in large products and they serve as a vehicle for technology. For most developing countries, FDI is a way to promote industries where they have comparative advantage that would not be exploited otherwise. The FDI inflows in Senegal has been high in the recent years. In 2012, it was 276 million dollars, 311 million in 2013 and 342 in 2014 (World Investment Report, 2015b). The country’s outflow has increased considerably since 2010. In 2010, it was 2.23 million dollars, 47.46 in 2011, 55.99 in 2012, 33.32 in 2013 and 37.0 in 2014 (World Investment Report, 2015a).
Figure 1(World Investment Report, 2015b)
Figure 1 is a representation of inflows to Senegal. The figure clearly indicates the different figures for different years. It shows how well the country has improved from inflows of around 2 million dollars in 1996 to almost 400 million dollars in 2008. The diagram is a clear indication that the country has implemented strategies since 2007 that have been of great benefit to the country.
Figure 2 (World Investment Report, 2015b)
Figure 2 represent the FDI inflows to Senegal. The figure shows the recent significant increase in FDI inflows compared to the inflows in the 1990s. The inflow was significantly high in 2009 and later had a significant drop in 2010. The figure also represents the fluctuation of the inflow in the country and indication that the country should implement strategies to make the inflow more constant.
Figure 3 (World Investment Report, 2015a)
The diagram shows the FDI outflows in the country have been on a rise but with constant fluctuations. The country had its highest outflow in 2008, the same year the inflows were high. The country also had a considerably low value of outflow in 2010.
Figure 4 (World Investment Report, 2015a)
The diagram easily shows the fluctuation of outflows in the country. The diagram also shows the low value of outflows in the 1990s and the significant increase of this value after 2005. It also shows a significant drop in 2010. It is an indication that officials can use this graph to study the strategies implemented in these years to make improvements.
Figure 5 (AT Kearney, 2015)
UNCTAD regional estimates show that developing Asia has received the greatest FDI inflows. There is a 15 percent increase to 492 billion dollars (Peterson & Laudicina, 2015). China is the largest FDI recipient. The FDI inflows to the United States decreased by more than 50 percent to approximately 139 billion dollars, which is as a result of the sizeable divestments in the region. On the other hand, European countries have had an increase of 13 percent to approximately 267 billion dollars (Peterson & Laudicina, 2015). The inflows to Latin America reduced by 19 percent and those to Africa reduced by 3 percent. Other transition economies like Russia reduced by more than 50 percent to approximately 45 billion dollars (Peterson & Laudicina, 2015).
Source of FDI
France is the largest source of FDI in Senegal, however, the country is keen to diversify the source of investment. In 1983, the United States and Senegal signed a Bilateral Investment Treaty that includes provisions on transfer of funds freely, non-discrimination, international law standards and resolving investment disputes using binding third-party arbitration (United States Department of State, 2014). The country’s share of investment has declined since companies from India, Togo, Morocco and the United States have also undertaken investment projects in Senegal. Companies like those from United States have invested in pharmaceutical, power generation, natural gas, information technology and oil exploration sectors. Other investors have also gotten contracts of developing mineral resources, providing garbage services, and managing the Dakar’s port (United States Department of State, 2014).
(United States Department of State, 2014)
FDI Index
Figure 6 (AT Kearney, 2015)
Seven of the countries ranked at the top and three quarter of the countries ranked above 25 are developed markets. It indicates how investors seek safe grounds for investing. Investors’ interests in emerging markets varies depending on the region. American investors are least interested in such markets and 42 percent are not invested and they seek to divest. The United States is second after China’s record-setting margin. There are other leading countries with positive macroeconomic investors’ outlook. Asia-headquartered companies have a more positive outlook on United States economy (Peterson & Laudicina, 2015).
Investment Opportunities
Since 1994, the World Bank, the International Monetary Fund, and other creditors have supported Senegal’s government sectorial and structural adjustment programs (Global Tender, 2016). The objectives of the programs are to facilitate growth and development through a reduction of the government’s role in the economy. It has improved the management of the public sector, reduced poverty levels, and it has enhanced incentives for the private investors. The country undertook an ambitious and bold economic programs with the support of International donor community. The reform followed a 50 percent devaluation of the country’s currency. The CFA franc is linked to the French franc fixed rate (Global Tender, 2016). The country’s Agency for the Promotion of Investment plays a key role in Senegal’s foreign investment program. The aim of the agency is to increase the investment rate to 30 percent. The United States’ direct investment in Senegal is approximately 38 million dollars in pharmaceutical manufacturing, petroleum marketing, banking and chemicals. Most of the economic assistance of 350 million dollars come from France, the World Bank, IMF and the United States (Global Tender, 2016).
Attractiveness for Future FDI Funding
There was a decrease of the FDI flow in Africa in 2013 and it has taken a while for the countries to recover. In 2014, the FDI flows to the continent doubled to approximately 127.9 billion dollars that have been as a result of several great deals (EY’s Attractiveness Survey, 2015). Investment per project has been averaged at 174.5 million dollars compared to 67.8 million dollars in 2013 and 169.9 million dollars in 2008, which was the previous peak (EY’s Attractiveness Survey, 2015). The increase in flow was as a result of capital-intensive large and real estate projects that include the oil project in Angola and the Sky Power energy project in the Nigerian government. Africa’s share in the global FDI flow has increased from 7.8 percent in 2013 to 17.1 percent in 2014. The 2014 FDI projects were expected to create approximately 188,400 jobs, which was 76,200 more than the jobs in 2013 (EY’s Attractiveness Survey, 2015). The continent’s share of jobs increased the global FDI from 5.9 percent in 2013 to 8.7 percent in 2014. The job-creation perspective to Africa’s FDI still makes Africa a poor performer. The FDI projects have provided more capital than employment opportunities.
In 2014, there was an indication of an increase of FDI inflows in Sub-Saharan Africa (SSA) and they declined in North Africa. There was a strong rise of FDI in North Africa, especially in jobs and capital inflows. Regions of Southern, West and East Africa had fewer projects due to decreases in economies in Ghana, South Africa, Nigeria and Kenya. However, other regions in Ethiopia and Mozambique attracted inward investment. The FDI capital inflows during 2014 in Sub-Saharan Africa had their highest peak since 2008 (EY’s Attractiveness Survey, 2015). The average investment in the region increased to 110 million dollars and the investors created 108,688 job opportunities. Research shows that investors have confidence in other countries like Kenya, Senegal, and Cote d’Ivoire (EY’s Attractiveness Survey, 2015). The sub-Saharan region which has most of the Africa’s population acts as a growth engine for the continent. In 2010, southern Africa was at the lead in comparison to North Africa in terms of investment and investment attractiveness and has continued to increase (EY's attractiveness survey, 2015). In 2014, North Africa became the second most attractive area in the continent compared to southern Africa. West Africa which is the region where Senegal is located, attracted 23.2 percent of the FDI projects in 2014. There was a shift to fewer and higher-value projects at an increase of 19.5 percent. The capital investment in this region increased by 14.3 percent during this period (EY’s Attractiveness Survey, 2015).
Figure 7 (EY's attractiveness survey, 2015)
Investment opportunities
Senegal has a stable political environment, well-functioning infrastructure, and a favourable geographic position to increase the foreign investment opportunities (United States Department of State, 2015). The Senegal government welcomed foreign investment and has prioritised the efforts to increase the business climate. The country has also maintained a macroeconomic environment with its currency that is also pegged to the Euro and it makes it easy to repatriate the income and capital. Investors of this country cite high factor costs, limited access to financing, and bureaucratic hurdles. The Senegal’s government is also making efforts to address the challenges to streamline procedures and to improve the country’s competitiveness (United States Department of State, 2015).
References
EY’s Attractiveness Survey. (2015). Making choices. Retrieved from http://www.ey.com/Publication/vwLUAssets/EY-africa-attractiveness-survey-2015-making-choices/$FILE/EY-africa-attractiveness-survey-2015-making-choices.pdf
Global Tenders. (2016). Economy of Senegal. Retrieved from http://www.globaltenders.com/economy-senegal.htm
Peterson, E. R., & Laudicina, P. A. (2015). The 2015 A.T. Kearney Foreign Direct Investment confidence index. Retrieved from https://www.atkearney.com/research-studies/foreign-direct-investment-confidence-index/2015/publication
United States Department of State. (2015). Senegal investment climate statement 2015. Retrieved from http://www.state.gov/documents/organization/241941.pdf
World Investment Report. (2015a). Senegal FDI Outflows. Retrieved from http://knoema.com/WINVR2015/world-investment-report-2015?tsId=1010340&action=export#
World Investment Report. (2015b). Senegal FDI Inflows. Retrieved from http://knoema.com/WINVR2015/world-investment-report-2015?tsId=1010580&action=export
