Africa’s Share of Global FDI Increases Over Last Five Years

from The Tripoli Post..

May 7, 2013

Africa’s share of global foreign direct investment (FDI) has grown over the past five years highlighting the growing interest from foreign investors, according to Ernst & Young’s third Africa Attractiveness Survey, that has just been released.

The report combines an analysis of international investment into Africa over the past five years with a 2013 survey of over 500 global business leaders about their views on the potential of the African market.

The latest data shows that despite a fall in project numbers from 867 in 2011 to 764 in 2012 – in line with the global trend – project numbers are still significantly higher than anything that preceded the peak of 2008. The continent’s global share of FDI has also grown from 3.2% in 2007 to 5.6% in 2012.

In his comments, Mark Otty, Ernst & Young’s EMEIA Managing Partner said: “A process of democratisation that has taken root across much of the continent; ongoing improvements to the business environment; exponential growth in trade and investment and substantial improvements in the quality of human life have provided a platform for the economic growth that a large number of African economies have experienced over the past decade.”

Despite the impact of the ongoing global economic situation, the size of the African economy has more than tripled since 2000. The outlook also appears positive, with the region as a whole expected to grow by 4% for 2013 and 4.6% for 2014.

A number of African economies are predicted to remain among the fastest growing in the world for the foreseeable future.

Eighty-six percent of those with an established presence on the continent believe that Africa’s attractiveness as a place to do business will continue to improve. Those surveyed rank Africa as the second most attractive regional investment destination in the world after Asia.

Increasing investment from emerging markets

Investment in FDI projects from developed markets fell by 20%. Although FDI projects from the UK grew (by 9% year-on-year), those from the US and France – the other two leading developed market investors in Africa – were considerably down.

In contrast investments from emerging markets into Africa grew again in 2012, continuing the trend over the past three years.

In the period since 2007, the rate of FDI projects from emerging markets into Africa has grown at a healthy compound rate of over 21%. In comparison investment from developed markets has grown at only 8%. The top contributors from the emerging markets are India (237), South Africa (235), the UAE (210), China (152), Kenya (113), Nigeria (78), Saudi Arabia (56) and South Korea (57) all among the top 20 investors over that period.

Intra-African investment has been particularly impressive during the same period, growing at 33% compound rate. South Africa has been at the forefront of growth in intra-African trade and broader emerging market investment – (the single largest investor in FDI projects in 2012 outside of South Africa).

Kenya and Nigeria have also invested heavily but it is expected that others such as Angola, for example, with a US$5b sovereign wealth fund, will become increasingly prominent investors across the continent over the next few years.

Ernst & Young’s Africa Managing Partner Ajen Sita, said that there is a growing confidence and optimism among Africans themselves about the continent’s progress and future.

There has also been an important shift in emphasis in investment into the continent over the past few years, in terms of both destination markets and sectors.

While investment into North Africa has largely stagnated, FDI projects into Sub-Saharan Africa have grown at a compound rate of 22% since 2007. Among the star performers attracting growing numbers of projects have been Ghana, Nigeria, Kenya, Tanzania, Zambia Mozambique, Mauritius and South Africa.

Perception versus reality

The 2013 Africa Attractiveness Survey shows some progress in terms of investor perceptions since the inaugural survey in 2011. The majority of respondents are positive about the progress made and the outlook for Africa.

Africa has also gained ground relative to other global regions. In 2011 Africa was only ranked ahead of two other regions, while this year it ranked ahead of five other regions (the former Soviet States, Eastern Europe, Western Europe, the Middle East and Central America).

However, there still remains a stark perception gap between those respondents who are already doing business in Africa versus those that have not yet invested in the continent. Those with an established business in Africa are overwhelmingly positive.

They understand the real rather than perceived operational risks, have experienced the progress made and see the opportunities for future growth.

Eight-six percent of these business leaders believe that Africa’s attractiveness as a place to do business will continue to improve, and they rank Africa as the second most attractive regional investment destination in the world after Asia.

In contrast, those with no business presence in Africa are far more negative about Africa’s progress and prospects. Only 47% of these respondents believe Africa’s attractiveness will improve over the next three years, and they rank Africa as the least attractive investment destination in the world.

The two fundamental challenges that are present for those already present or those looking to invest in Africa are transport and logistics infrastructure and anti-bribery and corruption. However, moves are being made on both accounts to help allay fears of investors.

Infrastructure gaps, particularly relating to logistics and electricity, are consistently cited as the biggest challenges by those doing business in Africa.

At a macro level, too, Africa’s growth will be inherently constrained until the infrastructure deficit is bridged. The flip side of this challenge, however, is that strong growth has been occurring despite such infrastructure constraints.

This indicates the potential to not only sustain, but accelerate growth as the gap is narrowed. Ernst & Young’s analysis indicates that in 2012 there were over 800 active infrastructure projects across different sectors in Africa, with a combined value in excess of US$700b.

The large majority of infrastructure projects are related to power (37%) and transport (41%).

Link to the full article: http://www.tripolipost.com/articledetail.asp?c=1&i=10174

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