Business in Africa: How much has Africa started to invest in its own future?
Q: How much has Africa started to invest in its own future? Which are the African countries that are the key investors on the continent? Which African companies are leading this drive?
A: Although interest from the West in Africa continues, and interest from Asia remains almost guaranteed, the increase in investment in Africa from within its own borders makes for the most interesting story. According to data from the United Nations Conference on Trade and Development (UNCTAD), intra-regional FDI in Africa remains limited in terms of both volumes and diversity. Nevertheless, the organisation states that there is “some evidence that intra-regional FDI is beginning to emerge in nonnatural resource related industries”. In this regard, UNCTAD states that harmonisation of Africa’s regional trade agreements could help Africa move closer to its intra-regional FDI potential. UNCTAD estimates that intra-regional African FDI accounts for only 5% of the total FDI in Africa in terms of value, and 12% in terms of number of projects. Intra-regional Africa FDI offers enormous opportunities, and we believe that there is a fundamental shift taking place with African countries becoming more proactive in investing on the continent. That said, like intra-regional trade, intra-regional African investment is still taking ‘baby steps’.
In terms of intra-African investment, South Africa has played a large role, although there has been some well-founded critique that South African firms have been slow off the starting blocks in Africa, with the continent’s second largest economy not using its entrepreneurial drive and its “home” advantage to its fullest extent. It is estimated that of the $554bn invested in Africa, South Africa has only contributed about 4%. Nevertheless, more than 80 Johannesburg Stock Exchange listed companies operate in Africa, and across a very diverse range of sectors: mining (Anglogold Ashanti and Goldfields), retail (Massmart, Pick ‘n Pay, Shoprite, Woolworths, Tiger Brands), telecommunications (MTN, Vodacom), and banking (Standard Bank, FNB), to name but a few. What is perhaps more interesting though are the underlying trendlines. South African direct investment in the rest of Africa has increased much more rapidly than the rate of increase in the country’s overall outward FDI since the 1990s. According to South African Reserve Bank data, whereas in the late 1990s only about 5% of South Africa’s outbound FDI was directed to Africa, by 2008, more than 20% of South Africa’s outbound FDI was targeted at the African continent.
Although South Africa’s FDI outflows to the continent by far eclipses those of Kenya and Nigeria, these two economies are nevertheless important foreign investors in their respective regions. East Africa’s largest economy, Kenya, has for a long time seen relatively high outflows of FDI to its neighbours Uganda and Tanzania. Kenya is considered East and Central Africa’s hub for financial services, with its banking sector among the most developed in SSA. According to the World Bank, about 11 multinational and Kenyan-owned banks use Kenya as a hub to expand their operations into the East African Community (EAC). Furthermore, UNCTAD figures show that Kenya’s oil marketer KenolKobil had the second highest greenfield investment in Uganda in 2010 – worth $1.7bn in coal and gas projects. Kenya has also invested in the retail space of neigbouring countries. Nakumatt, one of the most prominent companies operating in Kenya’s retail space, is also the biggest supermarket chain in East Africa according to the Financial Times. The company has 40 outlets in Kenya, Uganda and Rwanda. Plans are also underway to open an outlet in Tanzania, while the company is embarking on a feasibility study regarding the entrance to other markets such as Burundi, Zambia, South Sudan, the DRC, Nigeria, Botswana, and Malawi. These FDI outflows from Kenya to the region are by any measure still very small, but it is believed that they will continue to show an increase over time. Increasing integration of the EAC and closer trade ties, and a combined effort from the region’s governments to invest in infrastructure and, specifically also regional infrastructure, will pave the way to higher regional trade and investment.
Similarly, another economic powerhouse, Nigeria, is an active regional investor. Africa’s largest economy especially targets the financial services sectors of other African countries with its FDI outflows. Nigerian banks have a reputation of bringing in innovative services to neighbouring countries in West Africa, and many of the leading banks have an extensive presence throughout the region. More recently, the ambitious plans of Nigerian cement manufacturer Dangote have made headlines around the world. In April this year, the Financial Times reported that Aliko Dangote, Africa’s richest man, plans to list his multibillion dollar cement business on the London Stock Exchange next year. The reason for the listing is to finance the planned rapid expansion on the continent. Apart from Nigeria, where Dangote has three plants and 70% market share, the company has contracts to construct factories in eight other African countries.
Nevertheless, outside of South Africa, North Africa has been by far the most important source of FDI outflows from Africa since 2000. Most of these North Africa FDI outflows go to other Arab countries and Europe, but some of these flows are directed at Africa. Of the $29.4bn increase in outward FDI in Africa excluding South Africa since 2000, North Africa accounted for 69%. This in turn was due to a large increase in foreign investment by Libya and to a lesser extent by Egypt.