Nigeria, South Africa, Morocco, Kenya and Ethiopia accounted for 40 per cent of total foreign direct investments (FDIs) in Africa as foreign investors increased stakes on emerging economies.
In its latest report, Africa Attractiveness, Ernst & Young (EY) found that South Africa, Morocco, Kenya, Nigeria and Ethiopia remained the dominant anchor economies within their respective regions and accounted for 40 per cent of the continent’s total FDI projects.
The EY 2018 report, ‘Turning tides’, provides an analysis of FDI, into Africa over the past 10 years. The 2017 data showed that Africa attracted 718 FDI projects, up by 6.0 per cent from the previous year. This was in line with a recovery in the continent’s economic growth, following a difficult preceding year.
The report indicated that Africa attracted 718 FDI projects in 2017, representing an increase of 6.0 per cent on the previous year.
The four major sub-regions each attract similar FDI when measured by project numbers. For the first time ever, East Africa became the single largest beneficiary of FDI with 197 projects or 27 per cent of total projects. However, Southern Africa fared lowest of the four major regions with 162 projects or 23 per cent of total projects.
According to the report, Nigeria is leading the growing momentum in West Africa as the region’s FDI project announcements rose by 12 per cent from 2016 levels.
“In line with its recovery from recession in 2017, Nigeria garnered 25 per cent more FDI projects. According to the World Bank, Nigeria was among 10 economies globally with the strongest improvement in their business environment last year. The country jumped 24 places on the Ease of Doing Business index, thanks to concerted government efforts to tackle red tape, mismanagement and corruption,” the report stated.
The report noted that United States’ investors were particularly confident about the Nigerian economy in 2017, launching 22 projects during the year as against 10 projects in the previous year. South African, Chinese and United Kingdom investors also increased their FDI activity into Nigeria.
The report further noted that countries with business-friendly policies, with countries reforming to become more business-friendly, are most successful in outperforming their peers in attracting foreign investment.
With this, governments will need to increasingly become more focused on policy reform and drive an agenda that stimulates and supports private sector economic activity.
According to the report, recent initiatives in Ethiopia, as well as gains by Kenya and Nigeria in the World Bank Ease of Doing Business scores, illustrate that more Africa’s leaders are starting to prioritise the need for reform.
The United States (U.S.) remains the single biggest country investing in Africa, while Western Europe is by far the biggest regional investor. After the US, three of the remaining top five investors are European countries, including the United Kingdom (UK), France and Germany. Of the 10 largest investing countries in Africa, six are from Western Europe.
The higher project numbers were driven by interest in ‘next generation’ sectors, including manufacturing, infrastructure and power generation. Despite the rise in FDI, project numbers remain below the 10-year average of 784 projects per annum.
The report also highlighted the countries with the strongest FDI gains, with Ethiopia, Kenya and Zimbabwe experiencing a major uptick in FDI during 2017. By contrast, South Africa, Egypt, Mozambique and Cote d’Ivoire experienced declines in FDI projects in the same year.
Chief Executive Officer, Ernst & Young (EY) Africa, Ajen Sita, noted that 2017 was in many respects a key year for the continent as it saw multiple changes in leadership across a number of countries, including South Africa, Zimbabwe and Angola.
He pointed out that changes in leadership have in turn led to a renewed urgency to implement fresh policies as new administrations move to address slow economic growth.
Sita said there were major opportunities that the continent could benefit from after the recent leadership changes it had witnessed, but such opportunities require emboldened leadership to drive renewed policy reforms and implement new initiatives, which encourage inbound investment flows.
According to him, there are some outstanding examples of how this emboldened leadership has already worked in some countries, not least Rwanda, which is able to attract FDI well ahead of other economies of similar size, and indeed, ahead of much larger economies.
“By focusing on improving public sector efficiencies and finances, minimising bureaucratic processes and partnering the private sector on major projects, more countries can stimulate much needed FDI. In addition, they should continue to focus attention on increasing their scores on the ease of doing business and global competitiveness rankings,” Sita said.