A chronic problem in West Africa is the low savings rate, and hence the lack of financial resources for investment. As a consequence, the States of the subregion are extremely interested in external sources of financing, and consequently in capital inflows, both in entrepreneurial and lending forms. The flow of entrepreneurial capital to West Africa, however, is hampered by a number of factors. These include poor infrastructure, a low level of skills of the local workforce, lack of easy procedures for registering businesses, high levels of corruption, political instability and, in some cases, excessive taxation.
For these reasons, the inflow of foreign direct investment into West Africa has so far not been significant. As of 2006, cumulative accumulated foreign direct investment in these states corresponded to 30% of the sub-regional GDP. The country-level exception is Nigeria, which, as the largest oil exporter not only in West Africa but also in Sub-Saharan Africa as a whole, is a major destination for foreign entrepreneurial capital. In 2006, it accounted for 71 percent of all foreign direct investment in the subregion. Almost all foreign direct investment is concentrated in the extractive industries sector of West African states.
The inflow of foreign capital in loanable form in the case of most West African states is either completely absent or amounts to negligible amounts, because, as already noted, 13 countries in the subregion are classified by the IMF as poor countries with a high degree of debt burden. The debts of these countries have repeatedly been partially cancelled by the Paris Club. Nevertheless, as of 2005, the total external debt of West African states exceeded $61 billion. The countries with the greatest absolute external debt are Nigeria ($22.18 billion) and Côte d’Ivoire ($10.7 billion). The countries with the highest debt burden (i.e., the highest percentage of external debt to GNI) are Mauritania (117% of GNI), Togo (74% of GNI), and Côte d’Ivoire (69% of GNI).
International aid
International aid is the main external source of financial resources for States in the subregion. All West African countries are recipients of Official Development Assistance (ODA). In addition, Mauritania is a recipient of Saudi Arabia’s aid. Between 1995 and 2004, the minimum country level of total international aid in West Africa was $402 million (the Gambia received such aid during this period), and the maximum was $8 billion, $185 million (Ghana). The lowest aggregate international aid in West Africa was $402 million (the Gambia received such aid during that period) and the highest was $8 billion and $185 million (Côte d’Ivoire, Ghana and Senegal). According to 2006 data, in more than half of the countries in West Africa, the annual amount of ODA per capita exceeded the regional average ($43). The smallest amount of ODA per capita was registered in Côte d’Ivoire ($7), and the largest – in Sierra Leone ($62).
International organizations providing ODA are divided into two groups – a group of international financial institutions and a group of UN funds and programs. Of the first group, the International Development Association, the IMF and the African Development Bank are most actively involved in providing ODA to the countries of the sub-region. The second group includes the UN Development Program and the UN Children’s Fund. The largest donors of bilateral aid to West African states are the developed countries – former metropolitans, the U.S., and the Scandinavian countries. In recent years, the amount of aid provided to the states of the sub-region by the PRC has grown rapidly.