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Chapter 10 The Effect of Green Competitiveness on FDI

Kigali has benefitted from being one of the cleanest and most liveable cities in Africa
© Derejeb
Countries like Tunisia with a high Environmental Performance Index attract higher values of FDI
© Valery Bareta

To address the twin challenges posed by global economic integration and global climate change, cities and countries must be both economically competitive and environmentally sustainable. However, theories about the coexistence of these goals have been in conflict. This study therefore aims to contribute to the debate by proposing the concept of ‘greencompetitiveness’ (GC) which consolidates the World Economic Forum’s Global Competitiveness Index (GCI) and Yale University’s Environmental Performance Index (EPI). To this end, the study tests the effect of three indicators on: a) the attraction of FDI into countries worldwide; and b) the attraction of FDI into African countries by comparing the results and eliciting policy recommendations for Africa.

Traditionally, the objectives of development have been the satisfaction of basic needs and maintenance of good standards of living and welfare. But the impacts of development on the environment were mostly not well considered, if at all. Consequently, environmental deterioration and climate change have forced the world to acknowledge the need for more environmentally sustainable and equitable development paths. In today’s global economy, the path to economic progress for firms, cities and nations is even more dictated by competitiveness than before, since trade liberalization has promoted the economic integration of cities and firms worldwide. While economic competitiveness and environmental progress are now accepted global concepts of development, their meaning varies for different geographic areas e.g. Europe, Asia or Africa. The main concern of the world’s developing economies is poverty reduction through economic growth and consequently the environmental aspects of development are often of a lesser concern. In contrast, for advanced economies, excess wealth that is actually at the basis of climate change has enabled these countries to pay greater attention to environmental and climatic issues. However, because 90% of the world’s future population and economic growth will be in developing economies, the importance of environmental issues cannot be ignored by either the advanced or developing areas of the world.

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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.