Continent To Become $3tr Economy By 2030, Says CEO
A new report by Ernst & Young, an international audit, tax and advisory service provider showed that foreign direct investment (FDI) projects across Africa fell by 12.3% from previous year to 676, even as capital investment was up 31.9%, just as FDI job creation numbers dropped 13.1%.
Africa’s share of global FDI capital flows within the period increased to 11.4% from 9.4% in 2015, making it the second-fastest growing FDI destination by capital.
The report however noted that regional economic hubs such as Egypt (a trans-continental country spanning the northeast corner of Africa and southwest corner of Asia by a land bridge), Kenya (East Africa), Morocco (North Africa), Nigeria (West Africa) and South Africa, collectively attracted 58% of the continent’s total FDI projects in the period.
South Africa, according to the report, remains the continent’s leading FDI destination, measured by project numbers, rising by 6.9%; followed by Morocco, which regained its second place as Africa’s second largest recipient with projects up by 9.5%. Egypt attracted 19.7% more FDI projects than the previous year, just as foreign investors still favour key hub economies in Africa, a new set of FDI destinations is emerging, with Francophone and East African markets of particular interest.
Despite having a 31.7% decline in FDI projects in 2016, and weak growth in recent years, West Africa’s second largest economy, Ghana, remains a key FDI market, the report said, helped by its its improving macro-economic environment and strong governance track record.
This, the report added, has seen Ghana rise to fourth position in the EY Africa Attractiveness Index (AAI) introduced last year, to measure the relative investment attractiveness of 46 African economies, based on a balanced set of shorter and longer-term metrics.
Still in West Africa, Cote d’Ivoire also featured in the top 10 of the AAI, with a 21.4% jump in FDI projects in 2016, illustrating that it is becoming a country more favoured by investors.
Although not reflected in its current FDI numbers, EY said Senegal emerged as a potential major FDI destination, coming eighth position, “due to its diverse economy, strong strides in macro-economic resilience and progress in improving its business environment.”
Meanwhile, the report added that the surge in capital investment was primarily driven by capital intensive projects in two sectors, namely real estate, hospitality and construction (RHC), and transport and logistics.
Commenting on the report, Ajen Sita, EY Africa’s CEO expressed belief that “by 2030, Africa remains on track to be a US$3tr economy. However growth needs to become more inclusive and sustainable to eradicate poverty at the levels that are required. If we accept the reality that physical connectivity – enabled by regional integration and the development of physical infrastructure – will remain a key stumbling block to inclusive growth across Africa for at least the next decade, then the need to actively embrace digital connectivity becomes critical. However, efforts to harness the potential of digital technologies as a fundamental driver of inclusive growth are still far too piecemeal and fragmented.
“What is required is a far more collaborative effort between governments, business and non-profit organisations to adopt technological disruption, and create digitally enabled offerings with a particular focus on health, education and entrepreneurship.
“This somewhat mixed picture is not surprising to us. Investor sentiment toward Africa is likely to remain somewhat softer over the next few years. This has far less to do with Africa’s fundamentals than it does with a world characterised by heightened geopolitical uncertainty and greater risk aversion. Investors with an existing presence in Africa remain positive about the continent’s longer-term investment attractiveness, but they are also cautious and discerning.”
The report further noted the continued diversification of the continent’s FDI investors, with more than one fifth of FDI projects and more than half of capital investment flowing from Asia-Pacific, an all-time record.
Worthy of note, it added, is the dramatic increase in Chinese FDI into Africa, making the country the single largest contributor of FDI capital and jobs in Africa in 2016.