“Africa escaped the global decline in foreign direct investment (FDI) as flows to the continent rose to US$46 billion in 2018, an increase of 11% on the previous year, according to UNCTADs World Investment Report 2019”
Although Foreign Direct Investment in some large economies on the continent such as Nigeria and Egypt shrank, growth in non-resource-seeking investment as well as growing demand for some commodities and a corresponding rise in their prices underpinned a rise in the continent’s FDI. The surge in investment flows to other regions, most significantly South Africa, outweighed the decline in some economies. Africa Continental Free Trade Agreement (AfCFTA) signed on 21st March 2018 in Kigali, Rwanda, will further bolster regional cooperation. This is a good sign that Foreign Direct investment will continue to rise.
As the developed world matures, and becomes increasingly difficult to trade in as opportunities for corporate growth becomes limited, Africa and Asia are emerging as the future of the worlds growth. Global brands are now in a race to capture developing-world consumers. Africa has become the newest destination for emerging markets investors. From 2000, according to the World Economic Forum, “half of the world’s fastest-growing economies have been in Africa.” Ghana and Ethiopia showed real GDP growths of over 8% in 2018. The continent also has the advantage of a large and relatively cheap educated labor force.
In North Africa, according to the United Nations, FDI flows climbed by 7% to $14 billion. Investments in Egypt shrank (down by 8% to $6.8 billion), but the country continued to be the largest FDI recipient in Africa. In Morocco, FDI increased by 36% to $3.6 billion on the back of sizeable investments in finance and the automotive sector.
Foreign Direct Investment to West Africa declined by 15%, to $9.6 billion, largely due to Nigeria where flows plunged by 43% to $2 billion. FDI flows to Ghana also dipped, although by a more moderate 8%, to $3 billion.
FDI was steady at $9 billion in East Africa, the fastest-growing region of the continent. Ethiopia topped the region, even as flows to the country declined by 18%, to $3.3 billion. Flows to Kenya moved up by 27% to $1.6 billion, due to investment in diverse sectors, including oil and gas, manufacturing, chemicals, and hospitality.
While Angola remained negative (-$5.7 billion), largely due to oil and gas firms transferring funds to parent companies through intra-company loans, Southern Africa saw the biggest turnaround, with flows recovering to $4.2 billion after net divestment of $925 million the previous year. Largely attributable to intra-company transfers by established investors, FDI in South Africa more than doubled to $5.3 billion.
FDI flows to Sub-Saharan Africa climbed by 13% to $32 billion. Quite a recovery after successive contractions in the two prior years.
Opportunities are much in Africa. For example, across much of sub-Saharan Africa, there are no roads, airports, rails, ports, power grids and proper IT needed to boost African economies. The growth of imports, exports, and regional business are hindered by this lack of infrastructure. Companies that can connect Africans and markets will prosper. Large investment is leading to major upgrades and expansion at African ports and airports, but much of Africas growth potential depends on roads, rail and air connections linking different countries within the continent and states within individual countries.
The continent’s late arrival to the digital economy could be seen as an opportunity. Africa’s rapidly-expanding population is looking to technology to solve an array of problems, left unsolved by existing local companies. Foreign companies are realizing the huge profit that can come up from the continent’s digital transformation, and more corporations are scrambling to be a part of the growth story.
The informal economy represents nearly 72% of Africas economy, and around 38% of regional GDP – from street vendors to artisans, farmers to taxi drivers. For investors and entrepreneurs in Africas informal economy, opportunities abound for those capable of uniting fragmented markets and using data to improve productivity. There’s likely to be greater engagement and investment in large agent networks to bring goods and services to an underpenetrated informal market as e-commerce in Africa develops. Enhanced rollout of infrastructure also paves the way for startups marketing affordable software-as-a-service (SaaS) platforms that will allow informal merchants to have access to the same services as their structured retail partners: simplified accounting portals, point-of-sale systems, access to credit, and inventory management. Similar SaaS will also benefit farmers. Also, more companies will emerge to provide opportunities to benefit from an under-penetrated informal job market through digital platforms like Lynx or Max which provide access to larger customer bases.
Since Sub-Saharan Africa is plagued by power outages (almost 700 hours a year on average), weakening productivity, adding cost and leaving businesses captive to back-up and alternative power options, companies investing in energy can make a fortune.