Foreign Capital Inflows and Economic growth in Sub-Saharan Africa: A Study of Selected Countries

Abstract

The impact of foreign capital inflows on the economic growth of SSA, with emphasis on Nigeria, Ghana and South Africa was studied using multiple regression technique.  Outcome of the study revealed that there is no significant long run relationship between foreign capital inflows and the level of economic growth in Nigeria and South Africa. It was only the lagged value of GDP (In the immediate past year), taken as an independent variable that was found to be positively significant. Other Inflow indicators that were hitherto significant in the short run, turned out to be insignificant in the long. The scenario was almost the same for Ghana except for FDI and the lagged value of GDP (In the immediate past year), taken as independent variable that were positively significant in the long run. It was also revealed that, there exist causality relationships between capital inflow indicators and economic growth in the aforementioned countries. Conclusively, it was ascertained that most of the investment inflows into SSA were based on speculations, targeted at the non priority sectors of the economies and channeled into businesses with short gestation periods. Their impacts are only felt in the immediate periods and given that the funds are quickly repatriated after profits are made, they do not make the desired impact in the long run. The study therefore, recommends a conscious effort on the concerned economies to enact some investor friendly policies that will encourage/ attract more capital inflows and to provide a conducive and enabling environment. Basic infrastructures like good roads, electricity supply and security must be seen to be adequate. Again, there is  need to play down on speculative  businesses and  to invest in the real sectors of the economy .To reduce the level of capital flight, inflows should be tied to specific, relevant and purposeful projects. This will help to create employment opportunities in the long run. Lastly, there is equally the need for prudence and accountability in the management of accruals from official capital inflows and transfers. Such monies are expected to be channeled into productive ventures by the governments in power and not for profligacy.

Keywords: Foreign capital inflow, foreign Direct Investment, foreign Portfolio investment, Overseas Development Assistance, Economic Migrant’s Remittance, Trade Openness, Economic Growth