Impact of foreign direct investment on employment in Africa

In the past few years the flow of FDI towards the developing countries and especially towards the African countries is growing due to the pursuit of MNEs to maximize their profits, to lower their costs and to search for new markets. This is an opportunity for the African countries to work not only towards economic growth but also towards creating employment opportunities that can translate this growth into inclusive development. The changes brought about by technology including the wide spread use of internet and mobile phones have changed the way people work. There are even virtual markets, e-commerce activities and websites supporting for employment opportunities. Part-time or temporary employment is not uncommon e.g. in South Africa temporary workers comprise of about 7 percent of the labour force (The World Bank 2013). The employment impact of FDI needs to be looked at from such varied dimensions for the FDI policy perspective. Adoption of appropriate policies to create conducive factors for attracting employment generating FDI is the key to a bright future for Africa. Based on the above, the main objective of this research is to address whether FDI is effective in creating employment opportunities in Africa. The research addresses three sub-problems. Firstly, whether FDI impacts the quantity and quality of employment in Africa. Secondly, the impact of various sectors of FDI on the different employment sectors. Thirdly, to see if there are geographical differences across different regions and cities. As a culmination of the research it is also intended to contribute towards policy recommendations on the subject, as the topic of research is of considerable socio-economic relevance for the region. The literature analysing the correlation between FDI and employment uses a variety of methods and models and panel data analysis is often used for such research. The data used for the present research is panel data for the continent, region, country and city level analysis. Panel data is the data that consists of a number of observations with two dimensions i.e. time and space. Thus panel data analysis enables the study of data from multiple locations collected periodically over a certain period of time and is a combination of time series and cross sectional (Greene 2012). The period under research is a time span of twelve years from 2003 to 2014. An interaction between two variables is also used to avoid multi collinearity and thus to get more authentic results. It is clear from the findings of the research that the aggregate FDI does not have any significant impact on the overall employment in Africa. However, at sectoral employment front, it has a negative impact on employment in agriculture and positive impact on industry sector employment. Sectoral FDI too does impact employment industry sector. The negative impact of hi-tech FDI on overall employment and the positive impact of resource FDI on employment in industry are noticeable. The service sector employment, however, remains hardly impacted by the inward FDI, both in terms of aggregate FDI and sectoral FDI. As regards quality of employment the aggregate inward FDI does not exert any significant impact, neither at the continent level, nor at the regional level. The key variables of this research, both inward FDI and employment are pivotal for African countries to address the present development challenge and elevate them to the next level of development. The burgeoning youth population in Africa calls for urgent steps to generate employment opportunities. The research analyses the ways in which FDI has impacted employment in Africa during the research period that covers a span of twelve years i.e. 2003 to 2014. While historically, resource FDI has been a dominant other sectors are taking over, Impact of Foreign Direct Investment on Employment in Africa iv manufacturing FDI has the largest share during the research period, and looking at the recent trends in FDI, in future services FDI may takes its place. Overall amongst the FDI sectors manufacturing FDI is the key driver of employment during the research period, which may be replaced by services FDI a few years hence. Africa’s leaders need to pay heed to these aspects and take measures to attract suitable FDI for their country