The determinants for enhancing the competitiveness of service FDI in East Africa

According to Trade and Sustainable Development News and Analysis on Africa (2016), Services now constitute the largest sector of the world economy, accounting for approximately 63.5 percent of global Gross Domestic Product (GDP). They also represent the largest sector in 194 individual countries, among which 30 countries derive more than 80 percent of their GDP from services-related activities. African countries have also seen a considerable share of their GDP coming from the services sector. As one of the key drivers of economic growth, services will have a significant role in enabling Africa to meet the sustainable development goals (SDGs) adopted by the international community. For Africa, to take full advantage of the economic and social opportunities offered by services sector development, critical injections of foreign direct investment (FDI) are required. However, inward FDI is currently mostly concentrated in the extractive and agricultural sectors of only a few African countries, although evidence seems to indicate that this is gradually changing. African countries, including the East African ones, are opening their doors to attract service FDI towards their country. Nowadays, Africa has become one of the strategic major regions of global investing, which has grown strongly over the past five years. Ethiopia, the second populous country in Africa, has been a leading Africa state for more than 50 years. The comparatively central location of the country, coupled with being host to the headquarters of several international organizations, has helped accelerating Ethiopian economic growth. This has resulted in an increasing demand for both quantity and quality services. However, due to the accelerating demand for all kinds of services there are currently huge demand-supply and quality gaps. Therefore, attracting foreign investors towards this sector is required as input to economic development. Attracting service FDI has a lot of positive spill-over, such as technology transfer, management skills and investment capital. Therefore, emerging economies like Ethiopia should take efforts to further attract inward investment. To this end, Ethiopia should define her position with respect to the service sector by identifying the most determining factors of attracting service FDI, both at the regional and global levels. This would facilitate detecting and comparing the gaps and, in turn, pinpoint to recommendations on what Ethiopia should do to enhance and attract more FDI in the service sector and become more competent and competitive at the regional and global levels. As main objective, the research will identify and define the determinants that are significant to increasing the inflow of service FDI and set guidelines to improve the services FDI flows towards East Africa: Ethiopia. In addition, the study aims at adding knowledge in identification of service FDI inflow at global level and African countries (both country and city scale) in addition to examining their determinants of service FDI attraction. The literature review conducted in Chapter 2 relates the main concepts of competitiveness, multilateral cooperation, location factors, FDI and services sector. As the conclusion, the conceptual framework is formulated and discussed.