The relative youth of emerging markets tends to place countries into two categories: those with natural resources and those without natural resources. This sector composed of agriculture, forestry, fishing, mining, and oil and gas, has largely determined as of late which countries receive attention from the international investment community and moreover, which will continue to receive foreign direct investment flows.
Depending on the critique, the presence of natural resources can be viewed as a curse or as a blessing. The former occurs when both the foreign investor and the government do not take the appropriate measures to ensure accountability, transparency and a broader framework. On the other hand, natural resources can actually be a blessing when the industries are properly handled. For instance, the natural resources sector can be directly correlated to the growth of infrastructure, diversification into other sectors, higher employment rates, a greater skilled labor force, government revenue, and more future investment.
Of course, not all countries have the same type or amount of natural resources. Take for instance, the African countries Algeria, Nigeria and Angola all of which share the common currency of oil, and who are among the top 10 recipients of FDI in Africa, according to an Ernst & Young survey. While next-door neighbors Namibia, Benin, and Niger are not as resource rich and therefore, tend to be overlooked or are not on the radar of the international investment community.
These latter countries do not have the plentiful natural resources like their African counterparts, which in turn creates an economic predicament. Developing countries without significant natural resources have a harder time of being seen due to the shadow placed over them by the soaring economies of their neighbors, which in turn makes it more difficult to attract their piece of the FDI pie.
KITE Invest firmly believes that in the case of countries lacking the prowess of being resource rich, two measures become paramount for achieving greater levels of economic growth: diversification and communication.
In terms of diversification, fortunately for countries with lesser amounts of natural resources during the past decade investment diversification to other sectors such as financial services, business services and communications has been on the rise. For instance, in 2012 these three industries each accounted for between 12-18 per cent of the proportion of FDI projects in Africa, while metal industries, and oil and gas made up only 4.2 and 3 per cent respectively.
While there appears to have been a palpable shift towards the tertiary / service sector, diversification is not a panacea for developing countries lacking prime natural resources, because as studies show FDI flows have been clearly directed at countries ripe with natural resources irrespective of being the year 2003 or 2012. It is in this regard, KITE Invest reasons that in the cases of Namibia, Benin and Niger diversification cannot be the only remedy. Countries, such as these, must take further steps to incorporate a global communication platform in order to mainstream their economies, industries, as well as, their image and brand as international force in the global economy.
For further information regarding FDI distribution by sector, KITE Invest’s article, FDI Predictions by Sector, provides a thorough outline of the three economic sectors.