Effectiveness of Various Fiscal Incentives for Attracting the Inflows of FDI

In recent decades, a large number of Sub-Saharan African (SSA) countries have recognized the significance of the FDI inflows to their respective local economies. The flourishing incoming FDI flows have had a great impact on the poverty alleviation, economic growth and the overall development of the local economies. The incoming foreign capital flows in the form of FDI has also helped SSA countries in; transfer of technologies, boosting government revenues, human capital formation and creating new job opportunities in the region.

This shows how important the FDI inflows are for the growth and development of SSA economies and thus a need for increasing efforts to attract the much-needed FDIs.Most of the SSA countries are among Least-Developed Countries (LDCs) characterized by poverty and poor economic performance. The situation is contributed much by various factors, such as; political instabilities, inefficient infrastructures, poor technology and know-how, as well as poor setting and implementation of macroeconomic policies, just to mention a few.

The scarcity of FDI-inflows relative to the demand for them means high competition for attracting FDI in the region, therefore host economies in the region need to recognize this and make up-most efforts to attract the largest possible amount of it.The application of fiscal (tax) incentives is a major policy in attracting FDIs in SSA region. These SSA countries grant various tax relief incentives to Multi-National Enterprises (MNEs) in order to encourage them to invest more in their FDI-hungry economies. Therefore, the objective of this paper is to shed some lights on the effectiveness of the fiscal (tax) incentives provided by these countries, and the results from an empirical analysis show that the provision of fiscal (tax) incentives by local authorities would exert a positive impact on the overall inflow of FDIs to the region.

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