How Effective Are Fiscal Incentives to Attract FDI to Sub-Saharan Africa?

Given the role of foreign direct investment in the development process, one of the most important challenges facing Africa is how to attract foreign direct investment. A number of attempts have been made, but most have been unsuccessful because of various factors that work against the business environment for foreign investment. This paper analyses the impact of fiscal incentives, the most popular instrument, for attracting foreign investment to Sub-Saharan Africa. It uses cross-sectional time series data on 16 Sub-Saharan African countries, and an econometric model of three proxies of fiscal incentive, after controlling for traditional and other policy variables. The results show that traditional variables and government policies to attract foreign investment to Africa are important. Of the fiscal incentives, tax holidays seem to be the most significant. What could also be important are political and macroeconomic stability at the national and regional levels, property rights protection and other investment-supporting regulations and improvements in infrastructure and service support systems.