Inter Press Service: Foreign Private Investment in Low-Income Countries: More Important Than You Think
Nancy Lee, senior policy fellow, and Asad Sami, research assistant, both at the Center for Global Development

“In a world of stagnating public aid, limited fiscal space, and rising public debt in low-income countries (LICs), can they realistically expect to rely more on private finance from foreigners? What does the evidence suggest? Our new paper looks at recent cross-border private capital inflows to LICs. You might be surprised at what has happened since the global financial crisis. Foreign private investment has caught up to foreign aid as a share of gross domestic product (GDP) for the median LIC. … China more than doubled its stock of [foreign direct investment (FDI)] in Africa between 2011 and 2016 — and the amount is now closing in on that of large traditional direct investors like the United States, United Kingdom, and France. Much attention has been paid to China’s role as a creditor to Africa; its role as a rapidly growing direct investor has received less attention. … [T]here is also not-so-good news. More private foreign investment does not necessarily mean more private domestic investment in LICs. And private inflow ratios do not predictably rise with country per capita income. That means that donors reducing concessional finance as countries move out of LIC status should not assume private inflows will take up the slack” (7/24).