World Investment Report of 2018: Analyses of Africa’s Foreign Direct Investment (FDI)

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 08-Jun-2018

Africa endured a turbulent 2016/2017 as global commodity prices crumbled. This significantly exposed the fragility of many commodity-reliant economies in Africa and crippled the growth that had been accrued in the past few years. But majorly, foreign investors have now become sceptical of the African economies.

The latest World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD) showed that FDI [Foreign Direct Investment] flows to Africa slumped to $42 billion in 2017, a 21% decline from 2016. Weak oil prices and harmful lingering effects from the commodity bust saw flows contract, especially in the larger commodity-exporting economies. FDI inflows to diversified exporters, including Ethiopia and Morocco, were relatively more resilient,” according to the report that was released on Thursday.

Foreign Direct Investment Inflows to North Africa

Morocco

Strong, diversified investment into Morocco contrasted with declines in FDI to the rest of North Africa –the only sub-region yet to surpass its 2007 peak. FDI flows to North Africa were down 4% to $13 billion. FDI into Morocco was up 23% to $2.7 billion, thanks to considerable investment into new car technologies (electrical, battery, cameras). By the end of 2017, the Government had confirmed 26 auto industry investments worth $1.45 billion, including a deal with Renault (France) to increase local sourcing of components to 55%. FDI into the country’s financial sector also expanded, as banking relations with China deepened. In addition, Uber (United States) expanded operations in both Morocco and Egypt.

Egypt

Despite a decline in FDI of 9%, Egypt continued to be the largest recipient in Africa with $7.4 billion. Inflows were supported by a large increase in Chinese investments across light manufacturing industries and wide ranging economic reforms beginning to pay off. Financial liberalisation, for instance, fostered more reinvestment of domestic earnings.

Tunisia

FDI flows to Tunisia remained flat at $0.9 billion, a 1% decline from 2016. Nonetheless, improved investment incentives following the promulgation of the recent investment law, as well as new legislation on public-private partnerships, supported inflows from Belgium’s Windvision into the country’s renewable energy industry, as well as FDI in the electronics, software and IT industries from French and regional investors.

Algeria

FDI into Algeria, which depends heavily on investment in oil and gas, fell 26% to $1.2 billion, despite the bundle of incentives offered by the country’s new investment law. Diversification was supported by FDI from Huawei (China) to help with Houari Boumediene Airport in Algiers and from Samsung (Republic of Korea), which opened its first smartphone assembly plant in the country. Proposed amendments to the energy law could increase foreign participation in the country’s oil sector considerably in the future, if successfully implemented.

Sudan

FDI flows in the Sudan remained stable at $1.1 billion. The country is largely reliant on Chinese investments into its oil sector and the reaching of an agreement with South Sudan to access its once-productive oil fields. The lifting of United States sanctions on the Sudan in 2017 is expected to increase FDI.

Foreign Direct Investment Inflows to Sub-Sahara Africa

Harmful lingering macroeconomic effects from the commodity bust weighed on FDI to sub-Saharan Africa – even though debt levels, foreign currency shortages and inflation rates appear to be improving.

Nigeria

FDI to West Africa fell by 11% to $11.3 billion, due to Nigeria’s economy remaining largely depressed. FDI to that Nigeria fell 21% to $3.5 billion. With domestic demand well below investor expectations, several consumer-facing companies from South Africa exited Nigeria in 2016. 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, could help entice companies to return to Nigeria in the future. At the same time, new technology start-ups in Nigeria, backed by venture capitalists from South Africa and elsewhere, are helping to diversify FDI inflows. Nigeria has attracted strong market-seeking technology inflows from United States firms, including Uber, Facebook, Emergent Payments and Meltwater Group. Chinese investments in the country consisted of efficiency-seeking manufacturing FDI into the textile, automotive and aerospace industries.

Ghana

Ghana attracted $3.3 billion in FDI flows (down 7%), on the back of fiscal consolidation and self-imposed reductions in government investment spending. Until this past year, Ghana’s diversified economy had facilitated a continuous increase in its FDI flows since the 2000s. A firm price for gold and ongoing investment from Italy’s Eni to develop the large Sankofa gas field could further encourage FDI in 2018. Sankofa produced its first oil in 2017, with Eni having contributed the largest amount of FDI in Ghana’s history through its 44% stake in the company.

Côte d’Ivoire

FDI into Côte d’Ivoire, was up 17% to $675 million, reflecting supportive public investments by the government and economic diversification. As one of the two fastest-growing economies in Africa (along with Ethiopia), the country has attracted FDI into consumer goods. Heineken (Netherlands) invested $35 million in 2017 to double beer production and compete with Castel (France). Hershey (United States) is set to help the country process more of its cocoa locally, boding well for future investment prospects.

Senegal

FDI into Senegal was up 13% to $532 million. Russian producer KAMAZ will invest approximately $60.5 million in the first phase of truck assembly production in the country.

Foreign Direct Investment Inflows to Central Africa

FDI flows to Central Africa decreased by 22% to $5.7 billion.

DR Congo

FDI flows to the DR Congo fell by 67% to $1.2 billion from $3.6 billion in 2016. The deepening economic crisis in the country, volatility in oil FDI and weak FDI in non-oil sectors contributed to the decline. In contrast, the global race for cobalt used in electric car batteries supported an 11% rise of FDI flows into the Democratic Republic of Congo, reaching $1.3 billion. Glencore (Switzerland) bought two mining assets for nearly $1 billion, increasing its stake in cobalt and copper mines.

Equatorial Guinea

FDI flows rose also in Equatorial Guinea (to $304 million from $54 million in 2016) and in Gabon, a major oil producer (up 21% to $1.5 billion).

Foreign Direct Investment Inflows to East Africa

East Africa, the fastest-growing region in Africa, received $7.6 billion in FDI in 2017, a 3% decline from 2016.

Ethiopia

Ethiopia absorbed nearly half of this amount, with $3.6 billion (down 10%), and is now the second largest recipient of FDI in Africa after Egypt, despite its smaller economy (the eighth largest in Africa). Chinese and Turkish firms announced investments in light manufacturing and automotive after Ethiopia lifted the state of emergency in the second half of 2017. United States fashion supplier PVH (Calvin Klein and Tommy Hilfiger); Dubai-based Velocity Apparelz Companies (Levi’s, Zara and Under Armour); and China’s Jiangsu Sunshine Group (Giorgio Armani and Hugo Boss) all set up their own factories in Ethiopia in 2017. Several of these firms are located in Ethiopia’s flagship: Chinese-built Hawassa Industrial Park.

Kenya

Kenya saw FDI increase to $672 million, up 71%, due to buoyant domestic demand and inflows into ICT industries. The Kenyan Government provided additional tax incentives to foreign investors. South African ICT investors Naspers, MTN and Intact Software continued to expand into Kenya. United States companies were also prominent tech-oriented investors, with Boeing, Microsoft and Oracle all investing in the country. Significant consumer-facing investments by Diageo (United Kingdom) in beer and Johnson and Johnson (United States) in pharmaceuticals also bolstered FDI into the country.

Tanzania

The strong gold price and a diversified productive structure contributed to FDI inflows worth $1.2 billion into the United Republic of Tanzania. Facebook and Uber (both United States) expanded into that country while India’s Bharti Airtel continued to invest. The country’s inflows nonetheless recorded a 14% decline compared with 2016. Foreign telecommunication companies now must list, at least, a quarter of their equity on the local stock exchange, an effort by the Tanzanian Government to increase domestic ownership. In addition, a ban on exports of unprocessed minerals may adversely affect the country’s foreign mining assets.

Foreign Direct Investment Inflows to Southern Africa

In Southern Africa, FDI declined by 66% to $3.8 billion.

Angola

FDI into Angola, Africa’s third largest economy, turned negative once again (–$2.3 billion from $4.1 billion in 2016) as foreign affiliates in the country transferred funds abroad through intra-company loans. In addition, oil production declined and macroeconomic fundamentals deteriorated. Tenders for onshore oil blocks were suspended in 2017 but are to be re-launched in 2018 after a new government is appointed. A tender for oil blocks off southern Angola may also be opened in 2018 to offset declines in older fields.

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South Africa

FDI to South Africa declined by 41% to $1.3 billion, as the country was beset by an under-performing commodity sector and political uncertainty. Investors from the United States, which remain the largest source of FDI into the country, focused on services industries. The standout project was the investment by DuPont (United States) into a regional drought crop research centre. Automotive FDI also remained significant. General Motors sold its South African plant to Japan’s Isuzu, and Beijing Automotive Group Co. announced an $88 million investment in a vehicle manufacturing plant in a joint venture with South Africa’s Industrial Development Corporation. European investors, led by Germany and the United Kingdom, remained very active in South Africa, through initiatives such as BMW’s retooling of factories. Automotive FDI into South Africa is increasingly developing regional value chains: Lesotho now produces car seats, and Botswana ignition wiring sets, for auto manufacturers in South Africa.

Mozambique

FDI into Mozambique also contracted severely, down 26% to $2.3 billion, amid austerity and debt defaults. Long-term prospects rely on the country’s liquefied natural gas potential being exploited and profits reinvested to advance domestic development. Mozambique’s coal sector attracted investor interest from a consortium of Chinese, British and South African firms, but the project is in its early stages.

Zambia

FDI into Zambia increased by 65%, to $1.1 billion, supported by more investment in copper. The government, keen to diversify the economy away from copper, announced the building of a $548 million cement plant in a joint venture between the country’s mining investment arm and China’s Sino Const., Israeli Green 2000, already active in seven other African countries, also invested in food production, further contributing to economic diversification.

Geographical sources of FDI to Africa are becoming more diversified. Investors from the United States, the United Kingdom and France still hold the largest direct investment stakes in Africa. Italy has also 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 in Africa. China’s FDI stock in the continent reached $40 billion in 2016, as compared with $16 billion in 2011, according to the report.

Africa’s Foreign Direct Investment (FDI) Outflows

FDI outflows from Africa increased by 8 per cent to $12.1 billion. This largely reflected 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. Major African MNEs other than South African firms have, in the last few years, expanded their international footprints both within the region and elsewhere, with extra regional FDI heading to both developed and developing economies.

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