Africa: More investment when leaders study overseas

African leaders who attend universities abroad attract more sustained foreign investment to their home countries than those locally trained, according to a study of 40 African countries released last month. It found that foreign study had a major impact on economic development.

The report from the Institute for the Study of Labour, IZA, an international research centre in Germany, which found an overseas education had a significant influence on foreign direct investment (FDI), defined as a lasting investment (10% or more of voting stock) in a company outside the investor’s home country.

The study, African Leaders: Their education abroad and FDI flows, aimed to measure the importance of a leader’s education in attracting and increasing FDI to their home country. It focused specifically on whether a leader’s foreign education made a difference.

Africa has a long history of scholars studying abroad. Under colonialism, many young Africans would go overseas, typically to the colonising ‘mother country’, to obtain a good degree. This trend continued after independence, with many Africans studying in Europe and the US, ideally so they could return to their home countries to promote democracy, development and peace.

The study looked at 40 countries and found that foreign-educated leaders tended to have a more positive impact on their country’s political, civic and economic growth than those countries whose leaders were educated locally, or not at all. Politically, these leaders can play a pivotal role in bringing democracy to a continent notorious for dictatorships.

“Educated politicians generally can ensure a high quality of government because education significantly reduces the probability that an elected official uses his power opportunistically,” wrote Amelie Constant, co-author of the report and executive director of the Washington DC branch of the German Institute for Economic Research, DIWDC. Her co-author was Bienvenue N Tien, also of DIWDC.

More importantly, the study found that foreign education had a huge impact on a country’s economic development. Leaders with overseas degrees tended to attract more net inflow FDI per capita (US$82.7) compared with their counterparts educated in Africa (US$6.98) or those who did not receive any tertiary education (US$17.98).

An interesting finding was that a foreign degree only had an economic effect when FDI inflows were already relatively high, probably because of the complex infrastructure and networks previously established. Where inflows are low, such as in some of the poorer countries where the economy is still based around agriculture, the study found no significant difference between a foreign-educated leader and a locally educated leader in attracting FDI.

Nearly half (40.3%) of the leaders in the sample studied in the US, Europe and other countries abroad, while 27.5% attended universities in Africa. Constant pointed out “this is contrary to the popular misconception that African leaders are not well educated”. Still, the remaining 32.2% of the sample did not receive a tertiary education.

A key factor that helped make foreign-educated Africans better leaders was social capital, which the study defined as the “web of social relationships” and connections that, in Africa just like anywhere else in the world, help extend their education into the professional, working world.

The paper argued that social capital could boost economic development dramatically, and was the key factor in bringing FDI to Africa. FDI encourages long-term growth and sustained economic development, and is particularly important for developing countries that depend on it for a sustained connection to more developed countries.

Africa, which has received only around 3% of the world’s FDI for the past four decades, is trailing behind other regions. “African countries need FDI the most,” wrote Constant, who blamed weak governance, a high dependence on commodities and poor marketing strategies for the problems.

More than half of Africa’s FDI is found in the primary sector, so countries with abundant natural resources attract more of it. FDI inflow is also uneven across regions. North Africa had received 0.9% of Africa’s FDI for the past 40 years, while East Africa received only 0.2% over the same period.

Even as Africa becomes more democratic, it is still a continent where all too often leaders hang on to power for much longer than is healthy, or even legal. This has a direct impact on FDI inflows, which decrease proportionally the longer a leader remains in office, according to the study.

On average, an African leader remains in power for 13 years, and only slightly more than half of Africa’s leaders are democratically elected. Even when they are, a leader negatively affects FDI inflows when he stays in office too long, which came as no surprise to Constant.

“This is quite intuitive,” wrote Constant, “since the longer a leader stays in power, the more likely it is that he will switch to an autocracy or dictatorship, therefore discouraging foreign investors and contracting FDI inflows.”

The study also found that more and more Africans were getting educated abroad, including in the United States where more than half of the black students enrolling at Ivy League universities today are the children of African immigrants, according to US Census Bureau statistics from 2006. Many will never return to Africa. But some will and may well become leaders.

Source – University World News – by Alison Moodie