Last month, Ernst & Young (EY) released the 9th edition of the Africa Attractiveness report, which describes trends and opportunities in Africa’s economic growth and in foreign direct investment (FDI) to the continent.
The report finds that in 2018, FDI to Africa remained stable. While FDI flows were small by global standards, the ratio of FDI to gross domestic product (GDP) was high, underscoring the importance of FDI to the continent’s economic growth.
As Figure 1 shows, the largest investors by the number of projects in Africa were the United States, France, and the United Kingdom, respectively. Notably, China was the largest investor in terms of total capital ($ 72.2 Billion), investing more than twice the dollar amount of France or the U.S. The report indicates that FDI flows from traditional investors are partially driven by strong historical relationships: France, for example, is a key investor in francophone Africa. Emerging partners, including China, the United Arab Emirates (UAE), and India, are playing an increasingly important role in Africa, accounting for 34 % of total projects and over 50 % of capital investments and jobs created. Additionally, intra-African investment continued to grow in 2018: South Africa remained the most extensive investor in other African countries. Nigeria and Kenya contributed significant FDI to West and East Africa respectively. Egypt and Morocco are key investors in North Africa.
Figure 1 : FDI 2014 - 18 by source
Source: FD Intelligence and EY Attractiveness Report, 2019
Figure 2 lists the15 biggest beneficiaries of FDI in Africa, calculated using a weighted average based on the value of investments, jobs created, and the number of projects. The results show that FDI largely follows economic growth, policy reform, economic diversification, and GDP size. For example, the report explains South Africa’s high level of FDI by its diverse and relatively large economy, which provides more investment opportunities. Conversely, Rwanda is evidence that economic reform and business-friendly policies can attract investor interest, even in small economies.
Figure 2 : Largest beneficiaries of FDI in Africa, 2018
Source: FD Intelligence and EY Attractiveness Report, 2019
Additionally, the report analyzes FDI by sector. While extractives attracted a large portion of inbound capital in 2018 (36 %), most projects and jobs created were actually in the services and industry sectors. Figure 3 shows that the telecoms, media, and technology (TMT) and consumer products and retail (CPR) sectors gained increased prominence in 2018. The report indicates that FDI in the consumer segment has been driven by the demands of Africa’s rapidly urbanizing population with rising income levels, while investment in TMT has been driven by a rise in investment for technology and the increasing trend of global technology companies establishing a presence in Africa.
Figure 3: FDI Projects by sector, 2018
Source: FD Intelligence and EY Attractiveness Report, 2019
The report concludes by emphasizing the importance of both economic growth and reform in attracting FDI. It recommends that African governments take steps to diversify their economies in order to improve resiliency to macroeconomic shocks and provide a better environment for investors. The report also suggests that trade may become a major enabler of future growth, as the African Continental Free Trade Agreement (AfCFTA) should facilitate quicker, more efficient, and cheaper trade as well as stimulate economic activity.