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Foreign direct investment in Africa

South Africa, Nigeria and Ghana have over the years been the largest recipients of Foreign Direct Investments (FDI) within the African continent as they jointly accounted for about 50% of the FDI inflow into Africa in 2011.

In the second half of 2012, South Africa experienced a sharp decline of 43.6% in FDI compared to the same period in 2011. Despite the sharp decline in the FDI inflow to South Africa, total FDI to Africa increased by 5% indicating increasing flow of FDIs to the other African countries.

According to the Business Monitor International (BMI) and the Economic Intelligence Unit (EIU), Africa as a continent is expected to experience a continued growth in FDI given the positive economic outlook in major countries, some of which are highlighted below…

Investment and growth in Ghana, Nigeria, and Cote d’Ivoire

Investment in Ghana is expected to continue to increase over the medium term driven by the country’s stable political environment and investment opportunities in the oil and gas industry. Real GDP is expected to grow at 7.6% in 2012 followed by an annual average of 10.7% over 2013 – 2016. This growth is predicated on the expectation that the oil and gas boom will continue and will attract foreign participation.

Investment has continued to pour into Nigeria, as investors recognise the immense growth potential of Africa’s largest consumer market. The EIU has estimated an annual net direct investment of Nigeria at US$ 11 billion by 2016.

In Cote d’Ivoire, the improvement in the security, strong leadership from an investment friendly government and the expectation of a US$20 billion investment in infrastructure is expected to support rapid economic growth. Also, the discovery of light crude oil offshore of the country in June 2012 by Tullow Oil PLC is expected to trigger foreign investments in the near to mid-term.

Investment and growth in Angola, Ethiopia, and Mozambique

Angola’s growth is forecast at 9.9% and 8.1% in 2012 and 2013 respectively, predicated on the rebound in oil export industry in the foreseeable future. The growing opportunity in the oil and gas industry is expected to increase FDI flow into the country. The EIU has estimated an annual net direct investment of US$ 14 billion in the country by 2016.

Ethiopia’s forecast real GDP growth is expected to be at least 7% annually up to 2016 as the dominant agriculture sector continues to perform well, electricity supply improves and export demand picks up.

After reaching 7.4% in 2012, Mozambique’s economic growth is forecast to average 8% a year between 2013-17, owing to the minerals boom and investment in the gas sector.

Investment and growth in Zambia, Tanzania, and Congo

FDI inflows into Zambia have increased steadily since 2009 increasing at a CAGR of 18%, driven by recent foreign participation in major sectors of the economy. This improvement is strongly linked to the performance of the mining industry, which has been a major recipient of capital, technical input and managerial know-how in the past few years.

The economy is expected to grow by 7% on average between 2012 and 2016 based on the following:

  • Sustained macroeconomic stability
  • Increase in foreign investment and expansionary fiscal policies, driven by the government’s plan to increase infrastructure expenditure
  • Planned diversification of the economy which is expected to reduce the dependence of the Zambian population on copper.

Tanzania has emerged as one of Sub-Saharan Africa’s top foreign investment destinations, attracting over US$700 million in 2011. The outlook for the Tanzanian economy is positive with sustained strong economic growth.

The EIU estimates that average real GDP will be greater than 7% between 2012 and 2016. This favourable outlook is based on the following:

  • High gold prices and increase in exports which will boost foreign exchange earnings
  • Increased investment in infrastructure which is expected to support growth and boost productivity
  • Continued implementation of key economic reforms.
  • Tighter monetary and fiscal policy aimed at stabilising inflation and exchange rates.

Congo’s mining sector continues to attract strong international interest, particularly for iron ore. Growth is expected to average about 4.5% over the next two years (2012 and 2013) mainly driven by  expansion in the non-oil sectors, rising public spending and capital-intensive infrastructure investment.

Annual foreign direct investment forecast

According to EIU, FDI in Africa is expected to grow at a year on year growth of 59% (see table below).

Also, the limitless global demand placed on Africa’s abundant resources and the consumer based demand resulting from the rapidly growing “one billion plus population” are cogent reasons for significant increase in FDI flows to Africa as a continent. There are several target audiences looking into Africa for opportunities. These include:

  • Companies operating in low- or no-growth mature economies that need to find new ways to grow;
  • Companies operating in high-growth BRIC markets looking to fuel their growth further;
  • Companies looking for intra-Africa trade opportunities; and
  • Companies that already have operations in Africa that are looking to expand their footprint on the continent.

 

David Okwara

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