Foreign Direct Investment (FDI) INflows to Africa slumped to $42 Billion in 2017, which is a 21 per cent decline compared to 2016.
According to the UNCTAD World Investment Report 2018, weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw flows contract in host economies like Egypt, Mozambique, the Congo, Nigeria, and Angola.
“FDI outflows from Africa rebounded by 8 per cent to $12 billion. The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area (AfCFTA) agreement, should encourage stronger FDI flows to about $50billion in 2018, provided the global policy environment remains supportive.” Read the report.
Egypt continued to be the largest FDI recipient in Africa with $7.4 Billion. The inflows were supported by a large increase in Chinese investment across light manufacturing industries and wide ranging economic reforms beginning to pay off: financial liberalization, for instance, fostered more reinvestment of domestic earnings.
The report also notes that FDI sources have become more diversified. From a global standpoint, Italy has emerged as a major source of investment, particularly in the energy sector. At the same time, developing-economy investors from China and South Africa, followed by Singapore, India and Hong Kong (China), are among the top 10 investors. China’s FDI stock in the continent reached $40 billion in 2016, as compared with$16 billion in 2011. However the United States, the United Kingdom and France still hold the largest direct investment stakes in Africa.
FDI inflow Performances by Region
FDI inflows to North Africa were down 4 per cent to $13 Bn contrasting that of Morocco which was up 23 per cent to $2.7 billion, driven by considerable investment in the automotive sector, deepened banking relations with China and expanded Uber operations in both Morocco and Egypt. FDI flows in the Sudan remained stable at $1.1 Bn. The country reached of an agreement with South Sudan to access its once-productive oil fields. The lifting of United States sanctions on the Sudan in 2017 should help increase FDI.
Harmful lingering macroeconomic effects from the commodity bust weighed on FDI to sub-Saharan Africa even as debt levels, foreign currency shortages and inflation rates appear to be improving.FDI to West Africa fell by 11% to $11.3 billion, due to Nigeria’s economy remaining depressed. FDI to Nigeria fell 21% to $3.5 billion.
“A modest recovery in oil production and the general economy in 2017, as well as the introduction of an investor and export window to bid for foreign exchange, should help entice companies to return to Nigeria in the future.” Adds the report.
East Africa, the fastest-growing region in Africa, received $7.6 billion in FDI in 2017, a 3% decline on 2016. Ethiopia absorbed nearly half of this amount, with $3.6 billion (down 10%) and is now the second largest recipient of FDI in Africa. Kenya saw FDI increase to $672 million, up 71%, due to strong domestic demand and inflows in information and communication technology sectors.
In Southern Africa, FDI declined by 66% to $3.8 billion. FDI to South Africa fell 41% to $1.3 billion, due to an underperforming commodity sector and political uncertainty. FDI into Angola turned negative once again (down to -$2.3 billion from $4.1 billion in 2016) as foreign affiliates in the country transferred funds abroad through intra-company loans. In contrast, FDI into Zambia increased, supported by more investment in copper.
FDI outflows from Africa increased by 8% to $12.1 billion, reflecting a significant increase in outward FDI by South African firms (up 64% to $7.4 billion) and Moroccan firms (up 66% to $960 million). Outward FDI by Nigerian firms, in contrast, remained flat at $1.3 billion, focused almost exclusively on Africa.
FDI Inflow Forecast
The report highlights that FDI inflows to Africa are expected to increase by about 20 per cent in 2018, to $50 Billion. The impact of the AfCFTA on FDI will mainly be on non-commodity-seeking investment. To the extent that the AfCFTA accelerates economic growth and consumer income on the continent, market-seeking FDI will increase. Reductions in the price of goods and services, as well as the integration of product markets, will stimulate both market-seeking FDI and efficiency-seeking FDI for value chains, but only if non-tariff barriers are adequately addressed.
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