FDI accounts for one of the largest financial inflows to developing countries, particularly in Africa. Donor government policies and statements increasingly reflect a desire to harness and further increase this flow to achieve development objectives. In this context, and that of the current global economic crisis and a realization in the “development community” that private sector approaches can bring finance, innovation and sustainable approaches to development, donors are drawn to work more with businesses. Nonetheless, this raises a number of issues to be addressed. These include: how to balance working with home-grown firms and commitments to untied aid? What types of firms and investments to engage with? What instruments to use? How to link donor priorities with recipient government industrial policies? And to what degree does evidence suggest this engagement improves development impacts and compliance with international codes of conduct, including human rights commitments? This paper provides a review of these issues, based on theoretical discussions of the role of FDI in development and policy-related studies, analyses of the practices of some of the major donors, and the role of international commitments and codes of conduct for business, development and human rights in donor approaches. The paper will draw broad conclusions for policy-makers and questions for more detailed empirical analysis.
