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| Britain tops league table for foreign direct investment |
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| Written by Tom Clougherty | |
| Tuesday, 17 October 2006 | |
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As reported by Gabriel Rozenberg in The Times today, a new report from the United Nations Conference on Trade and Development (UNCTAD) has named Britain was the world’s top destination for foreign direct investment last year, with investment rising from $56 billion in 2004 to $165 billion in 2005. All of which is excellent news for the British economy. The report also contains sobering news for developing economies - the vast majority of foreign investment in 2005 went to the world’s developed economies. There have always been scare stories, tirelessly promoted by the anti-globalisation lobby, that free trade and globalisation are a race to the bottom - that Western money will be invested wherever the lowest wages are, and that the poor of the developing world will be exploited without mercy. The truth of the matter is somewhat different: developed economies with high wages and labour laws continue to attract the most business, for the simple reason that they are more productive, have better legal systems and greater stability. Of course this poses a dilemma for governments in the developing world. If they are going to create wealth and raise their people out of poverty they cannot afford to be left out of the world’s foreign direct investment flows. Luckily the second half of the 20th Century brought many examples of poor countries in Asia that successfully gained FDI, and today the most notable example is China. Indeed, after the UK and the US, the nation with the largest influx of foreign direct investment was China. If poor countries learn from China and remove trade barriers and create an environment in which business can flourish they will have the opportunity to grow richer and develop from within. But it is unlikely that African countries will be able to compete with China and India in the manufacturing business. Combining African agricultural production with African processing and packaging is a far more realistic option. As the success of Kenyan cut flower exports shows, with the right investment, management and expertise African countries can win world markets and effectively compete for business. Tragically too many of Africa’s exports at present are low-end basic produce, for example coffee which is subsequently processed in Belgium and Germany. Without doubt there is a role for development assistance to help advise African exporters on how to do more within their own countries. However, inward investment from companies overseas may well be the best way of bringing that expertise to Africa |