Rabat - A new report from the African Development Bank (ADB) has confirmed close links between Foreign Direct Investment (FDI) and the growth of the Moroccan economy.
Rabat – A new report from the African Development Bank (ADB) has confirmed close links between Foreign Direct Investment (FDI) and the growth of the Moroccan economy.
However, these foreign investments do not seem to have the same impact on the quality of life in Morocco, according to the report entitled “Does Foreign Direct Investment Improve Welfare in North African Countries?”
“Although the impact on per capita GDP is positive, the negative correlation between variations in FDI and per capita GNI in Morocco, although weak, confirms our previous results on the non-conclusive relationship between FDI and welfare,” said the report.
FDI inflows in Morocco were essentially in the services and tourism industries (finance, business activities, restaurants and hotel industries).
The African Development Bank has found that foreign direct investments widen income inequality in Morocco due to the sectorial concentration of FDI.
“FDI inflows were less diversified in Morocco which may explain some of our findings on the country. Hence, more diversified FDI across industries could have had a greater impact on poverty reduction.”
“In Morocco, directing more FDI toward the primary and the manufacturing sectors will be beneficial for wealth distribution,” the report added.
The report also examines the relationship between FDI inflows and welfare improvement in other North African countries.
“The lack of diversification of FDI in the economies of the region partly explains the differences from one country to another as to the links between FDI and the welfare of the people.”
“Few of these investments are directed towards non-extractive primary industries which are pro-poor and highly labor-intensive, or towards the manufacturing sector, with high potential for spillover effects in the economy,” the report added.
The African Development Bank makes three recommendations to strengthen the impact of FDI on the welfare of North African populations.
First, policies should be carefully designed to direct those investments toward the most productive sectors of the economy, namely the manufacturing sector.
Second, to reduce the inequalities within a country, sufficient incentives should be provided to encourage foreign investments in labor-intensive and pro-poor sectors such as agriculture, fishing, education, health and infrastructural development.
The third recommendation aims at better redistributing wealth within the region, reduce poverty and improve human development, governments in the region need to improve the quality of their institutions and their governance.