…FDI attracted733 projects, $194bn in capital, created 154 000 jobs
Last year saw Africa’s return as a top investment destination hub for global investors, but Nigeria came behind countries like South Africa and Egypt, according to EY report.
FDI rose 64 percent measured by project numbers. FDI attracted 733 projects, $194 billion in capital and created 154 000 jobs. Egypt led the FDI race, attracting 149 projects, and a record $107billion in capital.
South Africa received more FDI projects (157) and remains the leading FDI destination in SSA. Kenya dominates in East Africa, and Nigeria in West Africa, the 3rd and 4th largest FDI regions. CleanTech became the leading sector with an FDI score of 72 Technology and Business services are placed 2nd and 3rd respectively.
Africa remains strongly reliant on the west for its FDI, accounting for 53 percent of the total. The UAE became a prominent investor, committing $50 billion capital. Africa accounts for only 12 percent of its own FDI.
Significantly, Egypt saw a record of $ 107 billion in capital for its 149 FDI projects. In East Africa, Kenya dominated the FDI landscape while Nigeria was the leading country in West Africa. The countries came in third and fourth respectively for the largest FDI regions on the continent.
The continent had struggled to attract investment since the onset of COVID-19 and took longer than other regions to recover, as result of its delayed vaccine rollout and therefore its ability to reopen its 54 national economies.
To this, its growth lagged pre-pandemic levels for longer than it did in mature markets, setting back the ambitious targets it had set itself to reduce poverty and build a sizeable middle class by 2030.
The new report released by EY, a global multinational professional services firm, uncovered that FDI attracted more than 730 projects across the continent in 2022, injecting $194 billion in capital and creating 154,000 jobs.
The EY’s 13th Africa Attractiveness report tagged ‘A Pivot to Growth’, provides insights into the continent foreign direct investment (FDI), exposing that the 2022 calendar year saw a strong FDI rebound, led by Renewables inflows, with the West being the largest investor, while the North and Southern hubs of Africa were key beneficiaries.
A notable highlight of the report shows that CleanTech became the largest FDI recipient sector in 2022, leading Africa’s FDI for the first time. While the extractive based sector FDI inflows continue to fall, FDI into the Services sector, particularly Tech and Business services-continue to rise.
In a similar vein, Egypt FDI attractiveness continues to rise in prominence as South Africa FDI inflows remain flat. The three largest economies in Africa (Nigeria, Egypt and South Africa) are currently facing economic head winds. Zimbabwe features in the Top 10 for the first time in a decade while Ethiopia and Mozambique exit the Top 10.
Nigeria also lost FDI inflows momentum, The report acknowledges that West remains the largest source of FDI into Africa, but the UAE became the single biggest investor into Africa. China remains one of the ten largest investors, with India moving into the Top 10 list of investors.
Sharing insights on the report, Ashish Bakhshi, Senior Partner and Head of Markets, EY West Africa, believes that 2022 was the first visible sign of Africa’s return to the investment arena. He, however, notes that much remains to be done to ensure that its investment attractiveness improves so that it can build on last year ‘s fortunes.
For Ashish, there are encouraging signs from countries that are embarking on structural economic reforms and making the business environment easier to navigate. Some of the African countries are beginning to provide good example of how to build the confidence of global investors and attract broad-based Foreign Direct Investment across multiple, services-focused sectors.
The report aligns with Ashish’s position on the need for reform. The need for reform becomes more urgent when world faces such volatile economic events. Recent geopolitical forces are making it more difficult for governments across the globe to keep national finances within prudent spending level, straining their resources, at a time when exports also face pressure. This has caused widespread currency depreciation across the African continent, and many have needed outside intervention (from the International Monetary Fund (IMF) to provide financial assistance, according to the report.
The report discloses how economic policies, regulations, investment incentives and taxes, among others, will need to be further enhanced if the continent is to meaningfully benefit from inflows of investment capital. While many across the continent aim to increase their focus toward the East and the global south, for now, the Western Hemisphere remains by far the largest investor into Africa.
“Africa’s leaders will need to adopt pragmatism as they respond to a new geopolitical world order so that its member states can optimize the full spectrum of inbound investment opportunities, which will be essential in meeting Africa’s aspirations for a more equitable, wealthier and urbanized middle-class society”, according to the report.
It also admits that in recent years, foreign direct investment (FDI) into Africa has faced significant challenges, due to a series of global shocks which started with the COVID-19 pandemic. The global economic downturn dampened investor confidence. Uncertainties surrounding the trajectory of the pandemic, then the start of the war in Ukraine, made investors cautious about committing capital to African markets.
Travel restrictions and disruptions to global supply chains impeded investment processes and created logistical challenges for investors—making it difficult for investor to conduct due diligence, negotiate deals and manage their investments effectively.
According to Ashish, the pandemic highlighted vulnerabilities of certain sectors, such as tourism, hospitality and manufacturing, which previously attracted FDI.
“More important, inadequate healthcare, poor infrastructure and weak social safety nets in many African countries have added to the risk perception of potential investors, further impacting FDI inflows. Nonetheless, investment into the continent has started to recover in 2022”, he says.
The report also highlights policies Africa can adopt to attract more FDI, and they include among others: tackle youth unemployment and promote skills development, improve agricultural output to address food security,
focus on digitalisation and development of basic infrastructure, accelerate economic diversification and energy transition, manage public finance and national debt to avoid credit defaults.