26 April 2023, 9:30 - 15:30
Virtual workshop

This workshop has explored how recent trends affected foreign direct investment (FDI) flows, their impact on inclusive economic development and social cohesion in the partner countries of German development cooperation and how these impacts can be further improved.

FDI is widely recognised to enhance inclusive development – e.g. through technology transfer, improved access to international markets, enhanced employment, rising wages and lower costs of living. Yet, it may in some cases also have adverse effects, for example crowding out local firms and employment, increasing environmental degradation, enforcing lesser social standards – all of which may hamper development and erode social cohesion. FDI policy should therefore strongly focus on the quality of FDI, as also recently initiated by OECD’s “Quality FDI” initiative. By “FDI policy” we refer to investment promotion and complementary measures to improve host country development as well as support measures by international development partners.

At the same time, the conditions for FDI have recently changed, and with them also the potential for harnessing FDI for inclusive and cohesive development. We focus specifically on three recent trends, namely:

Major supply chain disruptions and respective reconfigurations of supply chains – diversification of suppliers, nearshoring, friendshoring etc., which we expect to affect African FDI recipient countries in different ways.
Booming investment in green hydrogen, with large project proposals for African countries, whose development effects we expect to differ considerable depending to the type of investment.
Increasing risks of market concentration driven by foreign investment, e.g. the emergence of “superstar firms” that dominate the markets in which they operate, potentially reducing profitability and development potentials of domestic firms.

This workshop brought together businesses, policy makers, practitioners and researchers to examine these recent trends and their implications for policy.

The workshop has focused on the role of German investors and policy makers and regionally zooms into Africa. During the last coalition, the German government initiated the “Marshall Plan with Africa” as well as the Compact with Africa. It promotes investment through a range of institutions (e.g. DEG, BfAI) and created special funds (such as the H2Global Mechanism) to increase foreign investments to and participation of German and European firms on the African continent. Development partnerships with the private sector, that is, short- to medium-term joint projects between investors and development agencies, aim to improve local development effects. As a further measure, due diligence reporting was made mandatory for larger German foreign investments, emphasizing human rights and working conditions.

The aim of this workshop was to work towards a shared understanding of the development effects of FDI (especially in terms of social inclusion and cohesion) and how public agencies can improve these outcomes – with a focus on the most recent FDI trends. The one-day virtual workshop was tailored to a select group of businesses, policy makers, practitioners and researchers. Each panel consisted of an initial statement (max. 15 minutes), followed by a panel discussion among stakeholders.

Find the report here.