Wednesday, March 29, 2023

Corruption doesn’t always deter FDI

If, as the Minister of Lands and Housing, Lebonaamang Mokalake believes, “high levels of corruption would scare away prospective investors”, why then did 10 African countries with higher corruption levels than Botswana attract more foreign direct investment (FDI) in the last two years?

The minister’s statement assumes a negative relationship between FDI and corruption but the reality is that, in absolute terms, corruption does not deter FDI. According to Transparency International, Botswana is the least corrupt country in Africa with a 64 percent score while Nigeria is among the most corrupt, with a score of 30 percent. For the past 49 years, Botswana has been known for its political stability while Nigeria has to contend with the Boko Haram insurgency in one part of the country. That notwithstanding, Nigeria receives the largest amount of FDI in Africa and is among the greatest recipients of such commodity in the world.

Political stability may be useful in earning retired African leaders the Ibrahim Prize for Achievement in African Leadership but market-seeking FDI is natively attracted to countries with a large market size and those whose economies have been growing over time.

South Africa (42 percent), Morocco (37 percent), Mozambique (30 percent), Zambia (21 percent), Tanzania (33 percent), Uganda (26 percent), Ghana (46 percent), Namibia (48 percent) and Madagascar (28 percent) score way below Botswana in the TI rankings but have been able to attract more FDI.

Mokalake made his remarks on the negative FDI-corruption relationship when launching his ministry’s policy statement on corruption prevention last week.

“Corruption is a national concern which requires concerted efforts by all stakeholders. The country requires injections of investment for further economic growth and development, therefore high levels of corruption if left unchecked, would scare away prospective investors. Corruption erodes economic and social growth, including investor confidence,” he said.

In the latest Global Competitiveness Report from the World Economic Forum, “inefficient government bureaucracy” is given as the third most problematic factor for doing business in Botswana. Government (Mokalake’s ministry included) is making itself susceptible to corruption because of excessive red tape within its systems. The last item in the public service’s 10-point agenda (“improving overall efficiency and reducing bureaucracy”) acknowledges this particular aspect of its operational lethargy but doesn’t tie it to corruption. Such link exists. While it is a fact that in the long-term, corruption hurts growth and investment, Third World economies like Botswana face a peculiar challenge. With weak institutions and an inefficient public service, there are those who will prefer to pay bribes to government officials than have to put up with obsolete institutions and regulations. Such bribery has been known to grease the wheels of bureaucracy and enable the replication of market mechanisms that are otherwise absent. In that the bribers are able to avoid the cost of operating in an environment characterised by poorly developed regulations. This could have a positive (if short-term) influence on levels of FDI inflows.


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