Overview of 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.
Positive economic outlook across Africa
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 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$20 billion investment in infrastructure is expected to support rapid economic growth. Also, the discovery of light crude oil offshore of the country in June 2012 by Tullow Oil PLC is expected to trigger foreign investments in the near to mid-term.
- Angola’s growth is forecast at 9.9% and 8.1% in 2012 and 2013 respectively, predicated on the rebound in oil export industry in the foreseeable future. The growing opportunity in the oil and gas industry is expected to increase FDI flow into the country. The EIU has estimated an annual net direct investment of US$ 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.
- 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.
- South Africa should not be discounted though. Where FDI can be quite volatile from one year to the next, the decline experienced in FDI to South Africa in 2012 does not necessarily represent a permanent trend.
For instance, in the past much of South Africa’s export trade has been within the Eurozone that was hard hit by the 2008/9 recession and in many respects is still recovering. The reduced trade within the Eurozone over this period enabled inter-BRICS export trade between South Africa and the rest of BRIC (Brazil, Russia, India and China) to increase from 6 percent of total exports in 2005, to close to 20 percent in 2012. These new trade partnerships helped shield both South Africa and many other African countries from the downturn in the Global economy.
FDI expected to grow year-on-year
South Africa’s National Development Plan (NDP) has generally been applauded and supported globally, where the President’s address at the World Economic Forum in Davos in January was a crucial first step to reassure investor’s confidence, Implementing the NDP and through this plan addressing the twin challenges of bureaucracy and labour market constraints are the next important actions to stay investor concerns, to bolster South Africa’s attractiveness and to increase FDI into the country.
According to EIU, FDI in Africa is expected to grow significantly year-on-year as can be seen in the below tabled forecasts.
From a pan-African perspective, the increasing global demand placed on Africa’s abundant resources and the consumer based demand resulting from the rapidly growing and urbanising “one billion plus population” are cogent reasons for significant increase in FDI flows to Africa as a continent. Africa thus continues to remain attractive to divergent investor groupings, including:
- 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, to ensure that they are well positioned to capture future growth opportunities.