Attractiveness of East African Community (EAC) for Foreign Direct Investment

Penev, Slavica and Marušić, Andreja (2014) Attractiveness of East African Community (EAC) for Foreign Direct Investment. Economic analysis, 47 (3-4). pp. 35-49. ISSN 1821-2573

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Abstract

The paper identifies competitive advantages and disadvantages of East African Community (EAC) as FDI location, observing EAC as a region, in spite of visible differences among the member countries. Despite the EAC’s progress towards the development of a common market still existing restrictions on free movement of capital, services, and goods inhibit or make FDI and entry into the market unduly expensive. The identified competitive advantages of EAC as a location for FDI are the following: fast economic growth, relatively low general government debt, low cost of labor, geographical proximity to regional and international markets, and high share of young people involved in primary education. The most prominent weaknesses inhibiting more FDI inflows in EAC are: small domestic market with low per capita income, low share of exports in GDP, high country risk, slow progress in structural and institutional reforms, underdeveloped infrastructure, high administrative barriers, inefficient government bureaucracy, low secondary and tertiary education enrolment, high level of corruption, and poor implementation of laws. The papaer concludes that the main policy message arising from theoretical findings and empirical evidence suggest that the best way for EAC to attract more FDI in the future is to: to speed up their EAC integration processes, to strengthen the structural and institutional reforms, to accelerate the legal and regulatory reforms, necesary for the improvement of the rule of law, reduction of corruption, and elimination of addministrative barriers. Any specific FDI policies are only of a secondary importance.

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