Enhancing the Manufacturing Sector in Sub-Saharan African Countries through Foreign Direct Investment

Abstract

Sub-Saharan Africa (SSA) is at a critical juncture in its economic development. Despite the region's significant potential for industrial growth, its manufacturing sector remains underdeveloped. While Foreign Direct Investment (FDI) can play a vital role in this context, merely attracting foreign capital is insufficient. This article proposes a novel approach that harnesses FDI to cultivate a skilled domestic workforce, thereby enabling sustainable long-term growth in manufacturing.

The study evaluates strategies to enhance the manufacturing sector in SSA and identifies the key factors driving this initiative. The research utilizes panel data from the World Bank and central banks of selected countries, covering the period from 2003 to 2020. The analysis reveals that three critical determinants significantly influence FDI in the manufacturing sector: political stability (coefficient = 3.989), natural resources (coefficient = 0.902), and trade openness (coefficient = 0.398).

The study recommends that SSA countries urgently design investment policies that encourage foreign firms to establish joint ventures or technology-sharing partnerships with local companies.