Examining the Factors Influencing Foreign Direct Investment: Evidence from Sudan

Sudan, as one of many developing countries, has increasingly addressed FDI as a means of economic development as well as for the stimulation of income growth and employment opportunities. Instead of leveraging self-savings, Sudan is mostly dependent upon foreign financing and domestic borrowing to ensure financial inflow, in order to budget and balance its payment deficits. This chapter examines foreign direct investment (FDI) in the context of Sudan during the period 1990–2020. The bounds-testing method of cointegration and the error correction model have been employed. Annual data from 1990 to 2020 on six macroeconomic indicators (e.g., real GDP, exchange and inflation rates, domestic investment, openness of trade, and FDI) were utilized in this research, including time series data obtained from the Central Bank of Sudan, the Ministry of Investment, and Central Bureau of Statistics. This research applied a model that assesses how various types of selective variables impacted the attraction of FDI to Sudan between 1990 and 2020. As per the results, it can be understood that the variables considered for the study are combined on a long-term basis if FDI remains a dependent variable. Further, a significant equilibrium correction was found, which supports the existence of a long-term relationship. A number of internal and external factors, especially gross domestic product (GDP), investment/GDP, trade openness, inflation, exchange rate, and growth rate were found to impact the state of FDI in Sudan. The variables showed no causalities as per the outcomes of the Granger causality test. Moreover, as per the variance decomposition results, the forecast error variance of FDI, in addition to that of GDP, investment/GDP, and inflation, was found to be self-explanatory. Additionally, as per the impulse response functions, the results demonstrated a short-term negative association between GDP and FDI, suggesting that Sudan possesses inadequate absorptive capacity for promoting its economy using FDI. The results of this research emphasized how selective public policies can be utilized to promote FDI and consequently facilitate short- and long-term economic growth. Therefore, it is useful to recommend some policy implications to promote the application of FDI in Sudan. A dynamic, attractive domestic environment should be created through the implementation of relevant policies; FDI must be supported by a hospitable regulatory framework, a large market, and a favorable economic environment, and ensure that the economy is stable and that the investment climate is attractive. Some sectors should also be prioritized in investments, such as agriculture-based industries, transport, communications, renewable energy, and digital transformation in government services, as well as financial and banking industries.