Abstract
Purpose of the study: This study investigates the effect of country risk management on foreign direct investment inflow in Nigeria and South Africa
Design/methodology/approach: Annual data covering the years 1990-2019 were analysed utilising the autoregressive distributed lag bounds testing approach.
Findings: Results from the bound test conducted revealed that all variables estimated for both Nigeria and South Africa have a long-run relationship. Moreover, the autoregressive distributed lag regression results demonstrate that country risk negatively impacts foreign direct investment inflows in Nigeria and South Africa in the long run. However, results also revealed that the sensitivity of foreign direct investment to changes in the country risk rating is higher in South Africa as compared to Nigeria. In the long run, gross domestic product per capita tends to influence foreign direct investment positively in both countries, with the effect appearing more substantial in Nigeria compared to South Africa. The short-run results are also in line with the long-run estimates, as country risk impacts foreign direct investment inflows negatively, while gross domestic product per capita affects foreign direct investment inflows positively.
Recommendations/value: The findings from the study highlight the need for the Ministry of Trade and Investment, as well as other relevant government agencies and Reserve Banks in both Nigeria and South Africa, to enhance the market capabilities of their economies through investment promotion/national rebranding. Moreover, they should improve the corporate and macroeconomic structures and create a conducive economic atmosphere that effectively supports the market forces.
Managerial implications: These findings necessitate the proactive effort of governments at all levels to improve the management of country risk by improving the overall security and civil order. They should also strengthen the countries' various economic, financial and political institutions in order to reduce country risks and attract much-needed foreign direct investment inflows.