The Role of Foreign Direct Investment (FDI) in Economic Development in Africa

Abstract

Foreign direct investment (FDI) has become a central component of economic development strategies in African countries. By providing financial resources, facilitating technology transfers, and expanding access to global markets, FDI contributes to infrastructure modernization, supports industrialization dynamics, and promotes job creation. It also plays a key role in integrating African economies into global value chains and attracting complementary investments. However, its impact remains ambivalent. In many countries, FDI is heavily concentrated in extractive sectors, reinforcing dependence on raw materials and limiting productive diversification. Additionally, massive profit repatriation, weak integration of local firms into multinational networks, social disparities, and fragile institutional frameworks significantly constrain FDI’s potential contribution to sustainable development.

This article adopts a narrative and integrative literature review approach to critically analyze the benefits and limitations of FDI in Africa. It highlights the conditions necessary to maximize its positive impact, including improved governance, a better business climate, infrastructure consolidation, and human capital development. Moreover, the success of FDI depends largely on governments’ ability to implement targeted sectoral strategies and foster the development of local value chains. Public policies that support innovation, professional training, and small and medium-sized enterprises (SMEs) can enhance FDI’s multiplier effects and increase its contribution to inclusive growth.Furthermore, the social and environmental dimensions of FDI deserve particular attention. Promoting responsible investments that comply with social and environmental standards can strengthen the long-term impact of these financial flows. Finally, regional cooperation and continental economic integration are essential levers for maximizing FDI benefits by facilitating the movement of goods, services, and capital while enhancing Africa’s economic resilience.

JEL Classification: F21, O55, O19, F23
Paper type: Theoretical Review .