Can more Foreign Direct Investments foster Sustainable Development?

Can foreign direct investments from aging industrialized countries contribute to sustainable economic growth and more material prosperity in “young”, less developed economies? What framework conditions would be necessary for this?

Andreas Esche, Director of the Megatrends Program, discussed these topics at the Global Solutions Summit 2019 with

• Allen Asiimwe (Executive Director AViD Development LtD)
• Gabriel Felbermayr (President of the Kiel Institute for the Global Economy)
• Stefan Mair (Member of the Executive Board of the Federal Association of German Industry, BDI)
• Mehmet Şimşek (former Turkish Finance Minister).

The panellists generally agreed that foreign direct investments could be of major significance for achieving demographic dividends in young, populous developing countries. However, the risks may not be forgotten. From the perspective of the investing companies, it is important, for example, that the market in the recipient countries has a certain size and also guarantees access to additional markets in the region. Politically stable framework conditions as well as the rule of law are basic requirements for generating trust and offering investors security. Furthermore, the recipient countries must have the necessary infrastructure, and sufficiently skilled labor must be available.

For less developed and demographically young recipient countries, it is important that the foreign direct investments not only bring know-how into the country, but also flow into sectors where jobs can be created for the growing number of young local workers. In order to achieve sustainable impact on the ground, multiple small and, above all, long-term investments are possibly better than only a few large ones.

What could help make more foreign direct investments flow into less developed countries in the future, especially into Africa? Firstly, the emerging countries’ education systems must be reformed and investments in these systems must be increased so that the growing labor force potential can be trained according to the economic needs. Jobs that are created locally by foreign direct investments could then also be filled more easily with domestic labor. Public-private partnerships can help with the establishment or expansion of the necessary infrastructure, while the dismantling of trade restrictions can give emerging countries better access to the international market.

In preparation for our panel, Martina Lizarazo López and Thieß Petersen discussed in their blog post "Yes, There can be Demographic Dividends with an Aging Population"  the relationships between demographic change, foreign direct investments and demographic dividends.