Africa FDI takes 10pc knock
Harare – FDI into Africa south of the Sahara decreased by 10 percent in 2019 to US$32 billion, mostly due to declining flows to Ethiopia, Nigeria and South Africa.
According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report, FDI inflows fell significantly for the second year in Ethiopia, the largest host economy of the region. The decline spotlighted some of the vulnerabilities in Ethiopia’s economy, such as exposure to climate change and instability in some regions.
FDI dropped in Zimbabwe as well. That country continues to experience general economic decline and uncertainty.
The UN agency’s report said, “FDI inflows to South Africa decreased by 15 percent to US$4,6 billion in 2019. FDI to this country is mostly directed to mining, manufacturing (automobiles, consumer goods) and services (finance and banking). Although traditionally the major investor partners have been countries from the European Union (EU), China is slowly expanding its investment footprint in the country.
“Despite the decline in 2019, the level of FDI inflows in South Africa was encouraging after the low inflows between 2015 and 2017 (an average US$2 billion a year). However, a significant part of FDI consists of intrafirm financial transfers; there is still a scarcity of new greenfield investments.”
In contrast, sizeable increases in FDI were registered in Uganda and Zambia.
In Uganda, major attractions were oil and gas, construction, mining, retail, telecommunications, business services and agribusiness. In Zambia, renewable energy and food processing attracted large new projects.
“Announced greenfield FDI projects, a key indicator of foreign investor intentions, were already down in 2019 and contracted further during the first quarter of 2020. The drop in 2020 will add to the decline in 2019 of six percent (to US$21 billion), when FDI flows to Asian (countries) shrank, although those to (Africa) grew.
“The pandemic and its economic consequences will hit (developing countries) hard, making prospects for FDI bleak. Limited domestic resources and weak health care capacity present an immediate challenge …
“Restrictive measures to control the pandemic have had negative consequences for economic activities. The immediate impact on FDI is a freeze in on-going investment activities and operations in host economies. A prolonged shutdown of economic activities will discourage new investment, slow down FDI from existing investors and possibly result in divestments.
“This could affect many (developing countries) that are highly dependent on foreign investors both for export-oriented industrial activity and in public-private partnership projects in infrastructure development (such as power generation plants and industrial parks). A delay in these projects will diminish not only short-term prospects for new FDI flows … but also decelerate long-term economic growth,” UNCTAD noted.
The report also said, “Overall, the impacts of COVID-19 vary across African countries both within and across sectors. The fall in global demand for exports and a slump in prices of major commodities including fuels are the main concerns for Africa.
“There has also been a fall in foreign direct investment, which is closely linked to the extractive sector and hence the commodity price cycle. The decline in crude oil prices by up to 60 percent will put significant strains on the revenue of the net oil exporters, particularly those whose revenues are highly determined by crude oil sales.
“However, the final impact will depend on how the respective countries will take advantage of their respective key markets as frontier closures are lifted with productivity resumed in world. Overall, fuel exports are estimated to fall by -7.7 percent, with a significant drop in GDP of about -3.3 percent in Congo and Mozambique.”
UNCTAD said the FDI outlook for 2021 was shaky as countries continued to focus on pandemic control.
FDI outflows from Africa decreased by 35 percent to US$5.3 billion.
South Africa continued to be the largest outward investor, despite the reduction in its outflows from US$4.1 billion to US$3.1 billion; while outflows from Togo increased 10-fold, from US$70 million to US$700 million. Outward FDI from Morocco increased to approximately US$1 billion from US$800 million.
A significant portion of FDI outflows were intracontinental flows, such as major investments by Moroccan, South African and Togolese companies within Africa.