Africa as a whole escaped the global decline in foreign direct investment (FDI), with
cumulative inflows to the continent rising to USD46b last year, an increase of 11%.
These encouraging figures were published in the latest World Investment Report 2019 by the United Nations Conference on Trade and Development. The report reveals that Uganda’s inflows reached a historic high, up 67% to US$1.3bn, while Kenya posted a 27% growth to USD1.6b and Tanzanian inflows rose by 18% to USD1.1b. Overall, flows to sub-Saharan Africa increased by 13% to USD32bn.
Investment was channelled into a diverse range of industries, with manufacturing, chemicals, hospitality and oil and gas being the main attraction for foreign investors.
Commodities drive growth
The growth in African FDI was attributed in part to rising demand for commodities that saw their prices surge.
The new African Continental Free Trade Area agreement (AfCFTA) will support regional co-operation. The agreement was adopted and opened for signature on 21 March 2018 in Kigali and came into force on 30 May 2019.
The agreement is expected to boost intra-African trade by more than 50% by 2022 as it requires member states to remove tariffs on most goods, liberalise services and tackle other barriers to trade.
Despite growth in inflows, FDI outflows from African countries in 2018 dropped by 26% to about USD10b.
To further attract FDI and attain sustainable levels of inflows, countries such as Tanzania have continued to work on improving the business climate and offering incentives to promote new investments, aiming to boost economic growth and employment.
For example, this year Tanzania endorsed a Blueprint for Regulatory Reforms addressing challenges faced by the business community which, once implemented, is expected to improve the business environment and attract new investments.
According to the World Investment Report 2019, France continues to be the largest foreign investor in Africa, particularly putting money into major hydrocarbon-producing economies such as Nigeria and Angola. The Netherlands holds the second largest foreign investment stock in Africa, with more than two-thirds concentrated in just three countries – Egypt, Nigeria and South Africa. China’s FDI on the continent increased significantly as it became deeply involved in Africa.
The report notes that in 2019, the expected acceleration of economic growth on the continent, progress towards the implementation of AfCFTA and anticipation of some large, previously announced greenfield investments materialising, could result in even higher FDI inflows.
The elimination of tariffs under AfCFTA should provide further encouragement for foreign investors to tap into the African market of 1.2bn people and a combined GDP of more than USD2.2trn.
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Date: October 2019
Article published by Nexia International’s Global Insight