Financial flows into Africa ‘hit record $200bn’, says African Development Bank

The total included remittances from Africa’s diaspora, which increased by more than 10% to reach $67bn last year, said the bank’s annual report for 2014 (306-page / 4.70 MB PDF).

Remittances to the continent represented the “largest source of foreign financial flows” and exceeded official development assistance (ODA) and foreign direct investment (FDI), “which have been the dominant sources of investment finance to Africa in the past”, the report said.

ODA “was estimated at $55.2bn, marginally lower than the $55.8bn recorded in 2013,” the report said. “This decline reflects a trend that began in 2000. However, ODA remains the largest single source of external financial flows to Africa’s low-income countries.”

“Africa’s resource-rich countries received the bulk of the inflows, suggesting that natural-resource endowments remain a major attraction for FDI to Africa,” the report said. Africa’s attractions include the fact that the region is home to nearly 30% of the world’s mineral reserves, 95% of its untapped hydropower, 10% of oil and 8% of gas, the report said.  

The report, which was presented to the governing boards of the AfDB and the African Development Fund during their five-day annual meeting in Cote d’Ivoire, which ends on 29 May, said infrastructure development “has benefitted from huge investments to the tune of $28bn in the past decade”. That compared to $18bn invested in the sector from 1964 to 2004.

The report said Africa’s largest infrastructure investment needs are in electric power. “Almost half of the $93bn needed annually to improve Africa’s infrastructure is focused on boosting power supply. African countries, with over one billion people, generate only as much power as Germany, which has a population of only 80 million people. It is also estimated that over 30 countries in Africa now face regular power outages, at an economic cost of 1-2% of gross domestic product.”

According to the report, “another major deficit is found in the number of all-season roads, which play a key role in enabling communities to engage in economic activity and to access services”. The length of road per square kilometre in Africa, “although improving”, was only 7.9 km in 2014, “which represents only 30% of Asia’s road density”.

However, the report said that with “increasingly stable governments, more-conducive business environments and a rapidly growing middle class, the continent is attracting ever greater amounts of foreign investment, and gradually becoming the destination of choice for investors”.

Nevertheless, it is “imperative that African countries tackle critical infrastructural bottlenecks by investing in major transport networks to open up their rural areas and link their economies with each other and with the global market”, said the report.

Investments by African nations in power, water, and telecommunications “will help businesses to grow, and working closely with each other, they will be able to provide the hard and soft infrastructure that is required for regional economic integration and inclusive growth”, the report said.

The AfDB said in 2013 that more than 30 million Africans (about 3% of Africa’s total population) are living outside their home countries and their remittances “play an important role as a source of financing and foreign exchange for African households and countries”.

The International Monetary Fund’s (IMF) Regional Economic Outlook for Sub Saharan Africa (116-page / 2.53 MB PDF), published in May 2014, said economic activity in the region continued to be underpinned by large investments in infrastructure, mining and maturing investments.

IMF managing director Christine Lagarde said high quality infrastructure “can accelerate diversification and employment creation, and support further regional integration”. She said that “closing the infrastructure gap can be daunting”... but that the IMF “stands ready to help with its policy advice, technical assistance and if needed financial support”.