FDI favouring consumer-facing industry

FDI favouring consumer-facing industry

FDI into Sub-Saharan Africa is expanding – in fact it is presently at its highest level in a decade – but it is notable that this injection of capital is increasingly being directed towards consumer-related markets, among others, and less towards the mining sector. North Africa’s political volatility continues to undermine its FDI opportunities, and the analyst is forced to talk about North Africa’s and Sub-Saharan Africa’s FDI situations in separate terms. Sub-Saharan Africa (SSA) currently lays claim to roughly 80 percent of all FDI into Africa.

FDI’s new favourite sectors

SSA consumer-facing industries are on the rise, in keeping with the continent’s growing middle class and discretionary spending power. Accordingly such industries are receiving an increasing number of international backers, and indicators point to this sector moving up the ranks of FDI players. Mining has always been a top 10 sector in terms of investment attractiveness and FDI project numbers, but last year its project number took a drastic dip. The sector is still expected to grow in light of major new oil and gas discoveries in recent years, particularly in the East of Africa, but its growth is being outstripped by that of other sectors, particularly financial services, consumer products, real estate, and telecoms.

New nations emerging as FDI hotspots

This century the FDI hotspots in SSA have been South Africa, Nigeria and Kenya, but investors – both foreign and African – are now also looking elsewhere. In particular we are seeing a rise in prominence and favour of Uganda, Ghana, Mozambique and Zambia. Moreover, with Morocco, Egypt, Tunisia and other North African countries slipping in the ranks, West and East African nations are starting to emerge as the continent’s most popular investment sub-regions after South Africa.

Major urban centres such as Lagos, Nairobi, Dar es Salaam, Johannesburg and Cape Town continue to rank well in terms of their FDI pull, and it is moreover urban areas where consumer-facing industries are enjoying the greatest growth. In terms of FDI sources, the biggest single source is the UK, followed by the US. South Africa is the biggest FDI player on the continent.

Klaus Findt, KPMG Chief Operating Officer of Global Infrastructure and Projects Group Africa, emphasises this point:

“… the continent is quickly burying some of the ghosts of its past. Across most of Africa, state-owned enterprises have been privatised or are planning privatisation, trade borders have been opened, corporate taxes have been lowered, and regulatory and legal systems have been strengthened.”

FDI into Africa has followed the oil over the past decade, and this will likely increase, as it is projected that at least another 100 billion barrels of oil are available off the continent’s shores, only waiting to be discovered. Although Africa’s oil, gas, mineral, and metal endowment will remain important draw cards for investment on the continent, focus is shifting increasingly to the potential contained in the size of and growth in Africa’s consumer market. In addition, enormous agricultural potential exists on the continent – while at the same time two recent global food price increases have highlighted the vulnerability of the world’s population.

 

David Okwara

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2 Responses to FDI favouring consumer-facing industry

  1. Anne Awuro June 13, 2014 at 2:00 pm #

    I love this article because it shows how improvements in the international market are beginning to have positive effects in Africa as a whole. Foreign direct investment is a very lucrative part of the business industry and it is a good thing that we Africans are considering and paying more attention to it.My dissertation was actually on this topic.

    • KPMG Africa June 20, 2014 at 10:20 am #

      Thanks Anne, we appreciate the fact that you found this useful and interesting. FDI into Africa not only favours the continent financially but also contributes on a large scale to skills transfer. Global Multinationals setting up branches in Africa employ local indigenes and this also contributes to an increase in the middle class family.

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