Investment in capital is an important ingredient in the growth process. Countries lacking
capital accumulation and technological progress usually grow much slower than countries
with high investment rate and huge research and development (R & D) expenditures.
Through foreign direct investment (FDI), Multinational Corporations (MNCs) can
provide countries with both capital and new technology. Indeed, some recent studies
conclude that FDI has been one of the most effective means of transfering technology and
knowledge (Addison et al, 2004; UNCTAD, 2003; Dunning and Hamdani, 1997).
However, most African countries exhibit features which make them unattractive
dependence of these countries on exports of a few primary commodities, they are
susceptible to external shocks especially terms of trade shocks. Second, their reliance on
agriculture exposes them to such natural shocks, as droughts and floods, with severe
adverse effect on the economy. Unquestionably, these features sum up to make the
region a high-risk zone. Third, most of these countries have underdeveloped financial
ignorance make the region vulnerable to sudden shifts in market perceptions and they are
deficits emanating from a weak tax system signify severe constraints on government
resources and impede government’s ability to address shocks and instability. Thus,
African countries seem trapped in a vicious cycle of instability, low private capital flows
and poor economic performance.