Foreign Direct Investment

Fuel for Growth

In early 2009, Verizon Wireless closed its acquisition of Alltel Wireless for $28 billion, and Alltel’s former CEO Scott Ford traveled to Rwanda to begin his “second half.” Scott had been visiting Rwanda for several years and followed its progress closely. He became a “Friend of Rwanda,” among other like-minded leaders with an interest in Rwanda’s development and a member of President Paul Kagame’s Advisory Council.

Scott wanted to make a difference in Rwanda and gave a lot of thought as to how. He told me, “As an entrepreneurial, faith-motivated businessman, I decided that the most significant contribution I could make was to build a successful for-profit business in Rwanda as a demonstration that foreign investors can make money here.” That year, Scott put his ideas and passion into action. He formed Rwanda Trading Company, purchased one of the country’s under-utilized coffee mills and started buying and exporting coffee, which is the largest cash crop in Rwanda and grown by more than 500,000 Rwandan farmers.

Economists call Scott’s coffee business in Rwanda a “foreign direct investment” (FDI). This type of investment occurs when private foreigners invest in a country by forming, owning and managing for-profit businesses and facilities. Attracting FDI is important to all countries, but it is an essential ingredient in the transformation of a poor economy into a rich one. For instance, FDI played a major role in the development of the Asian Tigers. When Singapore, South Korea, Hong Kong and Taiwan began their development in the 1960s, one of their top priorities was convincing foreign investors that they were good places for business. More recently, the rapidly growing economies of China and India both shifted into high gear when they reversed long-held attitudes and restrictions on foreign investors and began aggressively attracting FDI.

How does FDI fuel national transformation? When supported by national leaders, FDI is a powerful tool that helps grow an economy in various ways. The most obvious is that FDI infuses money into economies lacking investment capital where developing new industries and growing new businesses requires significant amounts of money. Being an outside source of investment capital, however, is not the only contribution FDI makes; in fact, it is probably not the most significant. Improving a country’s competiveness in the global marketplace creates many more sustainable advantages. Foreign investors and business owners help accomplish this goal by bringing in and developing management talent, industry expertise, training, technology, competitive standards of performance and access to global markets and networks.

When the wealth generated by FDI is channeled into the critical investments of education, healthcare, infrastructure and management, capacity is built up and nations improve their productivity. This makes countries more competitive in the global marketplace and even more attractive to FDI. This cycle, in which foreign investment fuels more wealth and wealth fuels more foreign investment, continues and gains momentum. As a result, the country becomes more and more prosperous.

To enter this Cycle of Prosperity, Africa needs more FDI and more Scott Fords. And it needs them now.

Dale Dawson is an investment banker and entrepreneur. He serves on Rwanda President Paul Kagame’s Presidential Advisory Council and is the founder of Bridge2Rwanda and Isoko Institute for Entrepreneurship and Strong Societies in Africa. Dale also serves on the boards of Urwego Opportunity Bank of Rwanda and OneHundredX. He is a graduate of the University of Texas and lives in Little Rock.