Working paper 600
The fast output growth that a number of countries in Sub-Saharan Africa have achieved in the last decade has led to significant inflow of FDI into the continent. A number of studies have examined the trend of such FDI inflows generally but only a few have focused on these flows that are mainly mergers and acquisitions (M&A). Using a dynamic panel data model, this paper examines the determinants of FDI that targeted Africa between 1990 and 2011, a period when the continent exhibited high and sustained economic growth. The paper finds that the trend of M&A in Africa is similar to that of the other developing regions suggesting that the underlying factors driving M&A globally also apply to Africa. However, M&A activity in Africa respond with a lag, showing the role of inertia in driving M&A activity. In particular, we find that M&A targeting Africa responds positively and significantly to international stock markets (S&P) and international bond yields (G7). Internal factors which are location specific are also important determinants. Not surprisingly, given the continent’s endowment in natural resources such as oil and rare metals, and the high demand for such commodities in this period, our results further indicate that natural resources are a positive driver of M&A targeting Africa.