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The Role of Government in Securing FDI

Foreign Direct Investment (FDI) has been a valuable financing mechanism for developing countries throughout Africa, particularly with regards to capital intensive projects such as Liquified Natural Gas (LNG) and cross-border pipeline developments. In addition to the supplementation of domestic investment, FDI has been a means for economy wide efficiency gains such as technology transfer, management knowledge and the increase in employment opportunities. With FDI proving a major catalyst for energy sector growth and economic development, and the COVID-19 pandemic tightening the strings on global investment flows, African energy projects have had to focus on the competitiveness and appeal of their investments to capture the necessary FDI.  

With global economic projections expected to recover in 2021, and developing countries re-directing their focus on diversifying energy mixes, expanding power generation utilities, and spurring economic growth through energy developments, governments are setting their sights on securing FDI in the energy industry. 

Alleviating Risk  

One of the primary inhibitors restricting international investment in developing countries is the associated risk, and thus, risk reduction becomes a critical role for governments in promoting private and international investment. Risk reduction not only creates an enabling environment for investors, but ensures more efficient and effective processes within a country’s energy sector. Therefore, the government’s role comprises market evaluation, least-cost planning, eliminating obstacles to equitable markets, and ensuring national energy planning. Additionally, through the enforcement of a productive regulatory framework, one with transparency and consistency at the forefront, the various political, economic, and legal risks can be appropriately mitigated and FDI effectively secured.  

Leadership that prioritizes the safety and security of operations, and supports the growth of the energy sector through risk reduction, can serve as a cornerstone and major attraction for FDI. Notably, Mozambique has been at the forefront of risk reduction through the emphasis of security of operations with regards to its budding LNG industry. Through the establishment of a joint security taskforce, and the training of security agents from international allies, Mozambique has made great stride in ensuring the security of operations and is, therefore, becoming a more attractive investment destination despite ongoing security threats.  

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Source: AfricaOilandPower

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