Yash
Tandon
ABSTRACT:
The reigning orthodoxy about Foreign Direct Investments (FDIs)
places them at the center of the development process in Africa.
Without FDIs, Africa apparently would foreclose its option
to growth. With growth foreclosed, there would be no way
out of Africa’s poverty, and its attendant problems including
unemployment, premature death through malaria, AIDS, etc.,
and technological backwardness.
Is this theory valid? Is it really
the case that without FDIs, Africa has no future?
This paper puts to question this
orthodoxy. It finds that this idea about FDIs is based on
false premises, backed by a vast amount of “empirical” and
theoretical literature, which has serious conceptual and methodological
problems. The body that collects the empirical justification
for this orthodoxy is the United Nations Conference on Trade
and Development (UNCTAD), which is commissioned within the
UN system to collect relevant data on FDIs and on Transnational
Corporations (TNCs).
The paper finds that the premises
on which UNCTAD experts rest their case is derived from a
“development” paradigm that has serious problems, both in
theory and in its application to reality. Economism is a
kind of reductionism that mystifies reality. Locating FDIs
in the center of development further mystifies reality and
pushes reductionism to its absurdity. The paper finds that,
contrary to received wisdom, Africa does not suffer from “low
savings rate”, leaving an “investment gap” that then has to
be “filled in” by FDIs. On the contrary, Africa’s savings
rate is high. However, those savings are not described as
“savings” in the dominant economic literature. They are described,
by some accounting convention, as dividends, interest on loans,
debt payments, etc. These then are externalized, and when
they come back, in another guise, they are described as “fresh
investments”. This is a serious case of moral hazard that
has so far evaded the attention of political economists.
The paper investigates the nature of this moral hazard, and
its consequences for Africa.
The paper was commissioned under
a project funded by UNCTAD. Part of the terms of reference
included an examination of how FDIs might be attracted to
Africa, and made to be sensitive to “Human Sustainable Development”
(SHD). The paper argues that there is, in fact, a net outflow
of capital from Africa, and hence trying to attract SHD-sensitive
FDIs is not the issue; the issue rather is that of making
TNCs that already control much of the resources of Africa
to be development oriented. The paper lays down a three-pronged
short term strategy on how to deal with FDIs, and recommends
to UNCTAD to distance itself from acting as advocates for
FDIs and TNCs.
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