JOHANNESBURG – Africa’s share of global foreign direct investment (FDI) projects has reached the highest level in a decade, according to Executing Growth, EY’s 2014 Africa Attractiveness Survey.
The report combines an analysis of international investment in Africa since 2003, with a 2014 survey of over 500 global business leaders about their views on the potential of the African market. The latest data shows that while there has been a decline in FDI project numbers from 774 in 2012 to 750 in 2013, primarily due to ongoing uncertainty in North Africa, they remain easily in excess of the pre-crisis average of 390 projects per year. There is a noticeable divide between FDI trends in North Africa versus Sub Saharan Africa (SSA). While FDI projects in North Africa declined by nearly 30 percent, projects in SSA increased by 4.7 percent, reversing the decline of 2012. This further widened the gap between the two sub regions, with the SSA’s share of FDI projects exceeding 80 percent for the first time. While the UK remains the lead investor in the continent, intra-African investment continues to steadily rise. Investors are also looking beyond the more established markets of South Africa, Nigeria and Kenya to expand their operations, as well as moving into more consumer-related sectors as Africa’s middle class expands.
“Africa’s share of global FDI projects has grown steadily over the past decade and it is a promising sign that investors are now looking across the continent and to new sectors. Further regional integration and infrastructure development should continue to entice investors to the exciting investment opportunities that Africa can offer,” according to Ajen Sita, Chief Executive Officer, EY Africa.
There was significant movement in the list of top 10 countries by FDI projects in 2013. Only South Africa and Nigeria retained their first and third positions from 2012 with 142 projects and 58 projects, respectively. However, FDI projects in both these countries witnessed a slight decline. Countries such as Kenya with 68 projects, Ghana with 58 and Mozambique with 33 all moved up the ranks. Zambia and Uganda were the new entrants in the top 10 list in 2013 with 25 and 21 projects respectively, an increase of more than 20 percent. In contrast, North African countries such as Morocco, Tunisia (ranked 8th in 2012) and Egypt slipped on the rankings. In 2013, both West and East Africa surpassed North Africa for the first time, becoming the second and third most attractive sub regions in Africa after Southern Africa. The UK became the clear leader in 2013 with 104 projects, while the US fell from joint first place to second place with 78 projects, a 20 percent decline from last year. South Africa, the third largest investor, directed 63 investment projects into the rest of Africa, a 16 percent decline on last year but a significant increase from pre-crisis levels when it registered on average 12 projects. There was a sharp uptake in FDI projects by Spanish and Japanese companies with increases of 52 percent and 77 percent, respectively.
Intra-African investment is also gaining momentum. African investors nearly tripled their share of FDI projects over the last decade, from 8 percent in 2003 to 22.8 percent in 2013. This growth is fuelled by the need for improved regional value chains and strengthening regional integration. Another driver of growth is the African investors’ understanding of the market and of the potential opportunities and challenges. “External investors supply long-term capital, skills and technology, and intra-African investment creates a virtuous circle that encourages greater foreign investment,” says Michael Lalor, EY’s Lead Partner Africa Business Centre.
The top three sectors – technology, media and telecoms (TMT) with 150 projects, retail and consumer products (RCP) with 131 projects and financial services with 112 projects – accounted for more than 50 percent of the total projects in 2013. During the year, RCP overtook financial services to become the second most attractive sector in Africa. FDI projects in the real estate, hospitality and construction sector increased by 63 percent, making the sector the fifth most attractive, up three positions from 2012. On the other hand, for the first time ever in 2013, mining and metals exited the top ten sectors when measured by FDI project numbers. When asked about the three sectors that would offer the highest growth potential for Africa in the next two years, investors highlighted the rising importance of agriculture which ranked only marginally behind mining and metals. Increasingly, infrastructure is also perceived as a key growth sector as well as consumer-facing industries including financial services, telecommunications and consumer products. “Although perceptions indicate that resource driven sectors are expected to remain the industries with the highest potential over the next two years, the actual numbers show that infrastructure and consumer-facing sectors will increase in prominence as the middle class expands and consumer spending on discretionary goods increases,” Lalor says.
By Staff Reporter