In spite of global headwinds, Africa and Middle East (MEA) economies have been expanding fast on the back of strong domestic demand and commodity exports. This growth has been accompanied by steady but slow productivity gains as economic structures tend to be dominated by agriculture, resource exploitation and services”. United Nations Commission for Africa Report 2017.
For a long time, developing countries, including Middle Eastern and Africans, have been relying on exporting a large quantity of raw materials and commodities, because they’re naturally rich with natural resources such as crude oil, natural gas, coal, iron, uranium, gold, diamond, and so on, in the other hand, imports all the final products and goods needed in the country. This feature impacted negatively on the economic development and growth, as exports are very concentrated and imports highly diversified, there’s no significant value added nor a jobs created in the economy, moreover, the diversification indices published in 2014 by the United Nations Conference for Trade and Development (UNCTAD) show that the structure of trade of those countries is highly concentrated, the concentration of goods exports increased during the period 1995 – 2012, and the share of primary products in exports is equal to at least 50% to the total exports in 2/3 of MEA countries. It’s well known that this type of trade structure does not create significant value added nor jobs to the economy, and leave the country exposed to any exterior shock (UNECA, 2013).
In late 1980’s MEA countries, MEA region’s governments tried to settle policies to shift their economies from agriculture-based to manufacturing-based one, and transform it to a high productive and large-scale market, therefore, Industrialization can be the key solution for the above-mentioned issues, because it can contribute to the increase of productivity, house hold consumption and intermediate goods demand (Fleming, 1955).
Meanwhile, MEA countries will be in need for additional financial and technical resources. Financial resources can be given by additional trade of natural resources that MEA countries are largely rich with, as well as private investment, but the most challenging task is to provide skill and technology to the economy, Foreign Direct Investment can be taken as a major tool to technology transfer, East Asian countries have broadly benefited from FDI inflows while shifting their economy to more productive ones (Di Maio, 2009. Dahlman, 2009). In fact, MEA region’s countries have not benefited enough from FDI as its share is yearly increasing with a special attention to the large-scale market that MEA markets can be provided by foreign investors. So, how can FDI inflow promote manufacturing sector in MEA region? And Which sector has a strong potential to attract FDI (excluding natural resources sectors)?
To my best knowledge, there’s a lack of studies on the impact of foreign direct investment on the manufacturing sector with special attention on Middle Eastern and African countries. This study comes along this goal and try to fill the gap by assessing the FDI impact on manufacturing share to GDP of 63 countries from MEA region over the period 1980-2015 with a sectoral approach.