Overcoming the Double Whammy of Liability of Foreignness and Industry Outsidership: The Role of Financial Intermediaries in Opening Africa to Institutional Investors

In recent years, Africa has seen a large inflow of foreign direct investment (FDI) by institutional investors such as development finance institutions, impact investors, investment banks and private equity. These investments potentially play a key role in building and financing a gap in Africa in relation to the development of the private sector. However, these investments are in many ways different from the traditional foreign direct investments made by industrial investors. The final version of this interactive paper will try to understand the increasingly important phenomenon of FDI by institutional investors in Africa through the lenses of International Business theory. A key theoretical puzzle in relation to the new type of FDI is how these investments can overcome not only the enormous liabilities of foreignness associated with African business environments, but also the liabilities of outsidership related to the fact that these investors invest outside their industry, i.e. the financial sector. The answer provided by this paper is that the foreign financial investors invest through increasingly sophisticated financial intermediaries that make it possible for them to overcome the twin liabilities of outsidership and foreignness. Through an analysis of a number of large investments by financial investors in financial intermediaries, the final paper will provide a better understanding of how these intermediaries operate and what role they play in bringing foreign direct investment into the African private sector.