Discussions concerning impact of Foreign Direct investments (FDI’s) in economic growth have been subject to lots of debate.
Scholars, academics and policy makers have been voicing their opinion some arguing it does not matter while others arguing in favor of its role in creating economic growth although in selected sectors of the economy.
Others again establish a chicken an egg like debate on whether FDI leads to economic growth or the contrary.
Looking at it through the lenses of DR Congo, the inevitable view is that it mattered. Perhaps this appears so obviously because the flows of FDI’s from the late 90’s followed a relatedly lengthy period without any sizable investment.
Whichever way we look at it, what i would like to call the « first round » of FDI’s was made of a mixed of investments between the primary sector, unveiling some mineral resources untouched for years (mainly mining), and the service industry, creating needs with enhanced technology mainly through telecom and Banking.
An instant forward leap was felt on the job market, with these firms brining on board top local university performers whose revenues further enhance the service industry that progressively pushed its level of sophistication while remaining basic as compared with equal or smaller neighboring GDP’s. (Rwanda or Uganda).
A closer look at this apparent development leaves one skeptical about the real impact of this close to double digit growth the country has been striking for the past 5 or so years. This growth seems to have a hard time expanding to the majority of the population passed a certain social « level » going down to the lower end of the economic tissue.
My take on this is that the growth pattern sort of went from sector one: primary (mineral resources) to sector three: Services (banks, telecoms or restaurants) while jumping sector two: industries; perhaps the most important in view of its multiplying effect to the rest of the economy.
Scholars argue that primary sector investments in mining and oil for example tend to have a limited value chain effect spending to other economic sectors.
This is verified in the Congo whose mining industry ecosystem is just as imported as the mining companies themselves. These are skill-based services whose transfer of competences takes time to permanently settle.
Despite a non-negligible impact on the labor market, although not enough to create a solid based of local executives- quinary sector, the essential of the externalities brought about by the primary sector are imported.
Another proof of the exactitude of this analysis is the relatively limited level tertiary sector investments (services) in the mining province of Katanga vs. a market like Kinshasa who is rather « independent » from the primary sector. The mining area, despite generating quite a sizable amount of the country’s GDP, remains a basic tertiary market with little to no investment in services.
In addition to the limited local externalities to other economic sectors, primary FDI’s in DRC remain limited in size and in sustainability.
Since the mining sector liberalization and the sector’s cleaned up to make it attractive- between the end of the 90’s to the early 2000-, a good 14 years or so have elapsed.
Within that time frame only a handful of mining companies managed to inject industry like, sustainable capital investments locally.
Industrialization, on the other hand, has a wider base of value chain sourcing inputs from many more sectors of the economy thus allowing a broader externalization effect touching different skill set and levels and resulting in a greater impact for locals.
A big question mark shutters the debate at this point. Does the country have what it takes?
Lack of viable power generation, weak educational structures, inexistent road infrastructure linking the country’s key areas, struggling railway network, not to mention the type of relative political stability and the sense of institutional continuity that enables reducing investments costs for such industrial projects.
What is certain however is that primary sector FDI’s alone or investments in reducing poverty through social actions will yield very little result without sustainable secondary sector investments.
The service sector is also likely to remain at a relatively limited level of sophistication if this status quo prevails.
Comments
Post a Comment