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Chapter 8 Policy Instruments for Attracting FDI in Renewable Energy

President Lungu launched Zambia’s Scaling Solar programme with IFC in 2016 to drive private investment rather than rely on donor-backed finance
©IFC
Wind farms in South Africa: wind investments have experienced steadier growth because wind is the most commercially viable technology
©Geoffrey Sperring

Global warming is rapidly rising on the agenda of policy makers in the developing south who are keen to improve environmental and economic sustainability. The industrialized countries have committed to supporting them by providing USD100 billion annually through the Green Climate Fund (GCF), established by the 16th conference of the parties (COP16). While foreign investment has great potential to help mitigate the current global environmental threat, its actual role has remained largely unexplored (Mahews et al., 2010; Peake and Ekins, 2016). Therefore, this study explores green foreign direct investment (GFDI), which in our case particularly refers to the renewable energy sector.

UNCTAD (2010) defines GFDI as the transfer of technologies, practices or products by transnational companies (TNCs) to host countries, through equity (FDI) and non-equity participation, so that their activities generate significantly lower greenhouse gas emissions than would otherwise prevail in the industry under business-as-usual circumstances. GFDI already has a good track record of contributing to environmentally friendly industries, practices, technology and skills. There is increasing evidence that it would be more effective to promote private investment in developing countries, rather than the financing of individual clean energy projects by donor agencies (Buntaine and Pizer, 2015). There is a lack of public investment in renewable energy and private investment can be used to fill the investment gap. In addition to creating jobs, private investment can also lead to the transfer of knowledge, skills and expertise. Consequently, it is useful to identify the policies that are most effective in attracting GFDI.

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About Cities Today

The State of African Cities 2018 is published by IHS-Erasmus University Rotterdam and UN-Habitat in partnership with the African Development Bank. The aim of the report is to contribute to development policies that can turn African cities into more attractive, competitive and resilient foreign direct investment (FDI) destinations. Attracting global FDI is highly competitive and crosses various geographic scales, therefore regional cooperation by cities and nations is critical. But FDI is not a panacea since it has both positive and negative effects and careful choices need to be made by cities in their pursuit of FDI, if it is to lead to inclusive economic growth. This report aims to provide guidance on these choices and to facilitate understanding of the complexity of global investment in Africa.