Foreign investment in Africa set to reach record in 2014, says report

Out-Law News | 27 May 2014 | 3:37 pm | 3 min. read

Africa’s growth is projected to accelerate to 4.8% in 2014 and 5-6% in 2015, levels which “have not been seen since the global economic crisis of 2009”, according to a new report.

Africa Economic Outlook 2014 (317-page/7.12 MB PDF), compiled by the African Development Bank Group, the Development Centre of the Organisation for Economic Co-operation and Development (OECD) and the UN Development Programme, said foreign investment in the continent, direct and portfolio, has “fully recovered from the effects of the crisis” and is projected to reach a record $80 billion this year.

The report said growth performance varied widely across the region, but the manufacturing and services sectors are attracting an “increasing share of the continent’s greenfield projects”.

According to the report, Africa maintained an average growth rate of about 4% in 2013, compared to 3% for the global economy, which “underscores again the continent’s resilience to global and regional headwinds”.

Sub-Saharan Africa posted 5% growth in gross domestic product (GDP) in 2013 and is projected to reach 5.8% in 2014, the report said. In South Africa, GDP growth was an estimated 6.1% in 2013 with 6.8% projected for this year. East and West Africa recorded the fastest growth in GDP in 2013 at above 6%.

External financial flows and tax revenues continue to be an “important contributor” to Africa’s development, the report said. Foreign direct investment (FDI) and portfolio investment “could soon constitute Africa’s main source of financial flows if the current pace of growth is sustained”.

Overall, “anaemic economic growth” in advanced countries has continued to affect the flow of direct investment and remittances to Africa, with the share from OECD countries sharply reduced against the rising contribution from non-OECD countries, the report said. Official development assistance (ODA) has continued to increase, “but its share in total inflows has significantly declined since 2000 as other financial inflows have increased more”. Nonetheless, the report said ODA remains the largest external financial flow to the continent’s low-income countries.

The report said extractive industries continue to be important sources of exports and growth in Africa and also the main sources of government revenue in resource-rich countries. In 2014, these industries are expected to “boost growth in several resource-rich countries but, in a few such as Nigerian and Equatorial Guinea, “prospects for oil production remain obscure”.

In Nigeria, the report said growth is mainly being driven by non-oil sectors, such as agriculture, trade, information and communications technology and other services. However, the oil sector, which accounts for 37% of GDP and about a fifth of government revenue, “is currently a drag on growth and suffers from theft and pipeline vandalism and weak investment”.

Ghana’s growth is projected to remain “robust, boosted by oil and gas production and increased private and public investment”. Côte d’Ivoire is also expected to remain on a “high growth path”. Here, “improved political stability and public and private investment have become important drivers of growth”.

In 2013, total external flows to Africa were estimated at $186bn, about the same size recorded in 2012, and represented 8.9% of the continent’s GDP. The report said: “The sharp decrease in portfolio flows, a rather volatile source of investment for the continent over the last decade, explains this stagnation and offsets the slight recovery in FDI, remittances and ODA.” Excluding South Africa, the largest recipient of investments on the continent, total external flows increased by a nominal 5% in 2013.

However, private financial flows, meaning investment and remittances, “are increasingly contributing to Africa’s development finance landscape”, the report said. Their share of total external flows, which were 63% over 2000-05, are likely to rise to 71% over 2010-14. “FDI, in particular, can be instrumental to develop productive capacities and remove infrastructure bottlenecks, especially energy and transport networks,” the report said. Recorded remittances have been “more resilient to the economic and financial crisis of past years and, as such, have emerged as a stable source of revenue” for some 120 million people in Africa, supporting consumption, education and health expenses.

The report cited Ernst & Young’s ‘Africa attractiveness survey 2013’ to highlight how the continent has become more diversified among sectors. In 2012, 73.5% of the total value of greenfield investments to the continent went to manufacturing and infrastructure-related activities, up from 68.3% over the past decade.

The top recipients of FDI to Africa in 2014 are likely to remain Nigeria ($6.5bn), Morocco ($4.8bn), South Africa ($4.8bn) and Mozambique ($4.1bn billion), the report said.

Meanwhile, Africa’s outward investment tripled from $5.4bn in 2011 to $14.3bn in 2012, bringing the continent’s share in global FDI outflows to a record 1%, the report said.