Infrastructure ‘main attraction’ for rising investment in Africa, says UN report

Out-Law News | 03 Jul 2014 | 2:36 pm | 2 min. read

Foreign direct investment (FDI) into Africa increased by 4% to $57 billion over the past year, driven by infrastructure investments in addition to “international and regional market-seeking”, according to latest figures released by the United Nations.

The UN Conference on Trade and Development’s (UNCTAD) 'World Investment Report 2014' said the increase was driven by the Eastern and Southern African sub-regions.

Foreign direct investment flows into Southern Africa almost doubled in 2013 to $13bn, “mainly due to record-high flows to South Africa and Mozambique”, the report said. “In both countries, infrastructure was the main attraction, with investments in the gas sector in Mozambique also playing a role”.

In East Africa, FDI increased by 15% to $6.2bn as a result of rising flows to Ethiopia and Kenya. The report said: “Kenya is becoming a favoured business hub, not only for oil and gas exploration but also for manufacturing and transport.” In addition, “Ethiopia’s industrial strategy may attract Asian capital to develop its manufacturing base”.

FDI flows to North Africa fell by 7% to $15bn while Central and West Africa saw inflows fall to $8bn and $14bn respectively, which the report said was due in part to “political and security uncertainties”.

The report highlighted the growing trend of “intra-African investments”, which it said are being led by South African, Kenyan, and Nigerian transnational corporations. Between 2009 and 2013, the share of announced cross-border greenfield investment projects originating from within Africa increased to 18%, from less than 10% in the preceding period, the report said.

UNCTAD said: “For many smaller, often landlocked or non-oil-exporting countries in Africa, intra-regional FDI is a significant source of foreign capital.”

The increase in FDI inflows to the continent is in line with efforts by governments’ leaders towards deeper regional integration, UNCTAD said. However, “for most sub-regional groupings, intra-group FDI represents only a small share of intra-African flows”, UNCTAD said.

According to the report, only in two regional economic cooperation (REC) initiatives did group FDI make up a “significant part” of intra-African investments, “largely due to investments in neighbouring countries of the dominant outward investing economies in these RECs”. The two initiatives highlighted are the East African Community (about half) and the South African Development Community (more than 90%).

The report said: “South Africa and Kenya RECs have so far been less effective for the promotion of intra-regional investment than a wider African economic cooperation initiative could be.”

UNCTAD said intra-African projects were concentrated in manufacturing and services. Between 2009 and 2013, only 3% of the value of announced intra-regional greenfield projects was in the extractive industries, compared with 24% for extra-regional greenfield projects.

UNCTAD said: “Intra-regional investment could contribute to the build-up of regional value chains. However, so far, African global value chain participation is still mostly limited to downstream incorporation of raw materials in the exports of developed countries.”

UNCTAD’s findings correspond to a report published last May by consultancy Ernst & Young (EY) which indicated a growing trend in FDI projects in Africa.

EY’s report on market attractiveness in Africa (80-page / 2.4MB PDF) said Africa was “increasingly being taken more seriously as an investment and business destination, but in many sectors, a window of opportunity does still remain open for establishing an ‘early mover’ advantage”.