Africa has benefited little from foreign direct investment (FDI) despite making considerable efforts over the past decade to improve their investment climate, a UN agency said on Tuesday.

Western firms have invested heavily in mining and oil sectors in the continent but these industries have yielded few benefits to create domestic wealth or jobs, said the UN Conference on Trade and Development in a report released in Nairobi.

The FDI, the report said, has become the "development finance of choice" for many African countries on the expectation that it will fill investment gaps without adding to external indebtedness, and that it promises a host of other benefits such as jobs, export opportunities and new technologies.

"Africa needs to create conducive environment to allow investment to flourish but look for ways of discouraging repatriation of wealth," Olu Ajakaiye, director of research of theAfrican Economic Research Consortium told reporters at the report's releasing function.

He said the African governments have liberalized their investment regulations and have offered incentives to foreign investors but the expected surge of FDI into Africa as a whole hasnot occurred because of negative perception of the continent by foreign investors.

Ajakaiye said African governments need to continue domestic reforms to diversify economies away from extractive industries such as mining and oil.

The FDI, the report said, increased more than nine fold from the 1980s to 2004 to 18 billion US dollars annually, driven by global demand for fuel and minerals.

"The FDI can play a very important role in advancing Africa's development," Ajakaiye said.

"The inflow of capital from FDI may be a benefit but the resulting outflow of profits may be so high as to make it a substantial cost," the report said.

The report said that it is wrong to look at Africa as an outlier, in the FDI story, because market size, growth prospects and export structure are what ultimately matter in capturing more FDI.

Ajakaiye said Africa will still need greatly increased flows ofFDI if it is to break out of the poverty trap, saying that inflowshave been volatile, responding to external market conditions and corporate pressures.

The report titled Economic Development in Africa; Rethinking the Role of Foreign Direct Investment, encourages African policy makers to redouble efforts to establish a competitive investment climate by integrating more closely into global economy and becoming more transparent and inclusive in their reform efforts.

Source: Xinhua