Development Bank of South Africa (DBSA) Development Report 2003: Finance for Development: Enhancing the role of private finance Contribution from Oliver Morrissey PRIVATE CAPITAL FLOWS TO SUB-SAHARAN AFRICA

This paper reports on trends and levels of capital inflows, and the volatility of such inflows, to a sample of 26 sub-Saharan African (SSA) countries over the period from 1970 to 1997. The data cover FDI and other private flows, debt flows for an aggregate comparison, and official development finance as the principal form of official inflows. For each type of inflow to each country, three alternative measures of volatility are calculated and discussed. Private inflows to SSA are very low, less than two per cent of GDP on average over the whole period. Having peaked in the late 1970s, private inflows have subsequently diminished, albeit with a recovery in FDI in the late 1990s. On the other hand, official inflows (aid) are significant and increased from six per cent of GDP on average in the early 1970s to 14 per cent in the early 1990s. The paper provides evidence that volatility has increased in the 1990s (relative to the 1980s, but not to the 1970s), that official flows are less volatile than private flows, and the volatility of FDI is much less than of other private flows. The paper shows SSA countries have become increasingly reliant on aid, attracting almost no private capital and little FDI. While private inflows, especially of short-term capital, pose problems in macroeconomic management, such flows have been too small to pose such problems in SSA. Outline