BusinessDay

Foreign Direct Investment?

Since foreign direct investment (FDI) is now one of the most significant sources of external finance for developing countries, developing nations have been looking for ways to increase their share of global FDI revenues for years. FDI flows to emerging economies reached their highest-ever level in 2021 with $837 billion, a 30 percent increase year-on-year. High growth performances on three continents—Africa, Asia, and Latin America and the Caribbean—were linked to the increase. This constituted just over half of all flows worldwide (UNCTAD, 2022).

The global FDI trend over the pandemic’s duration shows a clear contrast. Global trade and the gross domestic product (GDP), which had already started to rebound in the second half of the year, were significantly less severely impacted in 2020 than FDI.

Source: UNCTAD 2022, BRIU

FDI inflows into Africa more than doubled to a 113 percent year-on-year increase from the exceptionally low value in 2020, up $83 billion in 2021 from $39 billion in 2020, with 19 percent growth in Asia (to a record $619 billion) and a partial recovery in Latin America and the Caribbean (to $134 billion), according to the UNCTAD World Investment 2022 report.

Read also: Six charts on foreign direct investment in Nigeria since 2014

A record $83 billion in FDI was directed to Africa, making up 5.2 percent of all FDI. The largest sub-regional growth was in Southern Africa, up $42 billion. Central Africa’s growth remained flat, and North Africa decreased by 5 percent, to US $9.3 billion from $10 billion year-on-year. West and East Africa increased by 48 and 35 percent, to$14 and $8 billion, respectively.

A brief dive on Africa’s perspective

FDI inflows to West Africa increased by 48 percent to $14 billion. The revival of oil investment and the expansion of the gas industry caused Nigeria’s inflows to double to$4.8 billion. International project finance transactions in the nation now total $7.6 billion USD, including some sizable residential and commercial real estate developments. A refinery, international airport, industrial estate, and free trade zone are all being built as part of the $2.9 billion Escravos Seaport project in Delta State.

The construction of a $850 million gold mining facility by Newmont Corp (United States) and a $436 million cement factory by Ciment d’Afrique (CIMAF) (Morocco) are the two largest extractive industry projects that contributed to the increase in FDI flows to Ghana of 39 percent to $2.6 billion.

Source: UNCTAD 2022, BRIU

Something interesting on key variables

When compared to FDI and ODA, remittances are a significant source of foreign financing for developing nations (ODA). Remittances were the main source of international financing for developing countries in 2020 due to global activities, while FDI decreased by 12 percent.

Remittance inflows to Sub-Saharan Africa rose by 14.1 percent to $49.2 billion in 2021, with Nigeria accounting for 19.2 percent of the total. Strong economic growth was supported by continued economic activity in Europe and the US as well as recorded inflows to Nigeria, which decreased by about 28 percent in 2020 as a result of an increase in the use of unofficial channels.

Nigeria saw a respectable 11.2 percent growth in its flows, while the total amount coming from other Sub-Saharan countries rose by 16 percent to $30 billion in 2021. Due to the continued high cost of sending money across international borders, Sub-Saharan Africa is the region where remittances are most expensive (7.8%percent on average as at Q4 of 2021).

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