The Impact of Government Policies on Foreign Direct Investment in Developing Countries: the Case of Sudan

Abstract

Currently, policies implemented by governments in developing countries are dominated by the view that Foreign Direct Investment (FDI) is necessary for development and that, without FDI, there would be no growth. They also believe that FDI brings efficient management of resources, new technology, a culture of competition, and access to global markets. FDI is considered the best source of development finance on the grounds, among others, that it is self-liquidating. Obviously, Sudan is not an exception, with policies of economic liberalisation, policies of economic restructuring, attention to the infrastructure, privatisation, and establishment of the capital market, and other measures to attract FDI.

The aim of this research is to explore the impact of policies followed by the host country on the amount of inward FDI and the impact of FDI on the economic development of the host country. It is important to focus on the theoretical foundation of the FDI phenomenon and its relevance in explaining FDI determinants.

In conducting this research, a combination of qualitative and quantitative methods have been employed. A case study approach has been adopted to investigate the impact of the measures taken by the government of Sudan to encourage FDI. As well as investigating the impact at the macroeconomic level, the study focuses on the three sectors most affected by FDI: oil, real estate and telecommunications.

Oil production and exports are of vital importance for Sudan’s economy, and hence the government has focused much of its effort on this sector, which is dominated by Chinese companies. Many of the issues faced were similar to those experienced elsewhere in Africa where China is the source of FDI. The inflows to the real estate sector were mainly from the Gulf, with developers seeking to build residential accommodation and commercial property which would appeal to Sudanese expatriates returning from work there. Telecommunications, in particular mobile services, have brought about a social revolution in Sudan, as well as elsewhere in Africa. The government’s aim was to open the market up, with competition making phone tariffs more affordable. Overall, government policies to encourage FDI have been successful but it is evident that different policies are needed for each sector.