Africa investment hits record high

23 October 2006

Africa received record high foreign direct investment (FDI) inflows of US$31-billion in 2005, with good prospects for another increase in 2006, the United Nations’ trade and development body said last week.

Releasing its World Investment Report 2006, the UN Conference on Trade and Development (Unctad) said that FDI inflows into Africa grew by 78% in 2005 compared to 2004, driven by a sharp rise in corporate profitability and high commodity prices over the past two years.

“Prospects are good for another increase in 2006 given high project commitments, large numbers of investors eager to gain access to resources, and a generally favourable policy stance for FDI in the region,” Unctad said in a statement.

The share of foreign direct investment in fixed capital formation projects in Africa also increased, Unctad said, from 12% in 2004 to 19% in 2005.

However, the report noted that Africa’s FDI inflows in 2005 were mostly concentrated in a few countries and industries, while its share of global FDI remained low at about 3%. Sub-Saharan Africa’s US$17.9-billion share of global investments, for example, was dwarfed by the US$34.5-billion which flowed into Western Asia in 2005.

But viewed in relation to average earnings, sub-Saharan Africa had a promising year.

“In relation to its gross domestic product, sub-Saharan Africa’s foreign direct investment was quite high – 30.2% compared to 22.7% worldwide,” Dirk Willem te Velde, a trade and investment specialist with Britain’s Overseas Development Institute, told Associated Press.

The UN defines FDI as ownership of at least 10% of a firm by a foreign company. Economists take both inward and outward FDI as signs of a healthy economy.

SA gets biggest, most diversified share
According to Unctad’s report, South Africa was Africa’s largest FDI recipient in 2005, experiencing a sharp jump in inflows to $6.4-billion – 21% of Africa’s total – from only $0.8-billion in 2004. This was thanks mainly to Barclays Bank’s $5.5-billion acquisition of SA’s Absa Bank.

Investment Inflows to South Africa were also the most diversified in 2005, being channelled into energy, machinery and mining as well as into banking, which received the largest share.

Africa’s top 10 recipient countries – South Africa, Egypt, Nigeria, Morocco, Sudan, Equatorial Guinea, the Democratic Republic of Congo, Algeria, Tunisia and Chad – accounted for close to 86% of the continent’s total FDI, with eight of these countries receiving over $1-billion in FDI.

At the other extreme, Unctad noted, FDI inflows remained below $100-million in 34 African countries, many of which have limited natural resources and low manufacturing capacity “and, as a result, are among the least integrated into the global production system.

“Some countries have also experienced political instability or civil war in the recent past, which destroyed much of their already limited production capacity.”

The report also found that FDI inflows to Africa were concentrated in a few industries, notably oil, gas and mining. Six oil-producing countries – Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan – accounted for about 48% of the continent’s investment inflows.

Africa’s FDI outflows, according to the report, remained small in 2005 and came from a few countries – with Egypt, Liberia, Libyan Arab Jamahiriya, Morocco, Nigeria and South Africa accounting for over 80% of total outflows.

The continent’s largest transnational companies were also from a small number of countries. “In 2004, nine of the top 10 non-financial African transnational corporations ranked by foreign assets were South African,” Unctad said. These were:

  • Sasol (petrochemicals)
  • Sappi (paper)
  • MTN (telecommunications)
  • Steinhoff (household goods)
  • Barloworld (diversified industrial)
  • Naspers (media)
  • Nampak (packaging)
  • Gold Fields (metals)
  • Datatec (Information technology)

Sasol (16th) and Sappi (23rd) were also ranked among the top 25 transnational firms from developing countries.

Textile firms pull out
The report found that a number of transnational corporations in the textile industry had pulled out of Africa because quota advantages for African countries declined after the end of the Multi-fibre Arrangement (MFA) in 2005.

“Although countries such as Kenya, Mauritius, Lesotho, Swaziland and Uganda had begun to receive FDI for their textile and apparel industries due to the African Growth and Opportunity Act (Agoa), the trend changed following the end of the MFA in 2005,” the report states.

“In Mauritius there was a 30% contraction in the volume of garments manufactured in 2005 following the departure of Hong Kong (China)-owned companies. In Lesotho, six textile TNCs closed, with a loss of 6 650 jobs.

“The setback demonstrates that the impact of trade-related initiatives can be short-lived in Africa, where domestic capabilities are inadequate for quickly absorbing and continuing production processes.

“It also underscores the fact that Africa’s industrial progress requires competitive production capacity, in addition to better market access and more welcoming regulatory frameworks.”

SouthAfrica.info reporter

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