Ethiopia has registered a slight dip in the amount of Foreign Direct Investment for 2017, but still was able to absorb half of all $7.6 billion investment for East Africa.
According to World Investment Report of the United Nations Conference on Trade (UNCTAD), FDI flows to Africa slumped to $42 billion in 2017, a 21 per cent decline from 2016 with weak oil prices and harmful ongoing macroeconomic effects singled as causes of the lower funding. But on a consoling note, even all of global FDI has slowed in the last year.
East Africa, the fastest-growing region in Africa, received $7.6 billion in FDI in 2017, a 3 per cent decline from 2016. Ethiopia absorbed nearly half of this amount, with $3.6 billion (down 10 per cent), and is now the second largest recipient of FDI in Africa after Egypt, despite its economy being deemed smaller economy compared to other economies in the continent.
Ethiopia growth in FDI is attributed to textile and manufacturing sector. The report notes that Chinese and Turkish firms announced investments in light manufacturing and automotive after Ethiopia lifted the state of emergency in the second half of 2017.
Also United States fashion supplier PVH (Calvin Klein and Tommy Hilfiger); Dubai-based Velocity Apparelz Companies (Levi’s, Zara and Under Armour); and China’s Jiangsu Sunshine Group (Giorgio Armani and Hugo Boss) all set up their own factories in Ethiopia in 2017. Several of these firms are located in Ethiopia’s flagship, Chinese-built, Hawassa Industrial Park.
Kenya recorded an FDI increase to $672 million, up 71 per cent, attributed to inflows into ICT industries as well as the Kenyan Government providing additional tax incentives to foreign investors.
South African ICT investors Naspers, MTN and Intact Software continued to expand into Kenya while United States companies were also prominent tech-oriented investors, with Boeing, Microsoft and Oracle all investing in the country.
Significant consumer-facing investments by Diageo (United Kingdom) in beer and Johnson and Johnson (United States) in pharmaceuticals also bolstered FDI into the country.
In Tanzania, the strong gold price and a diversified productive structure contributed to FDI inflows worth $1.2 billion with Facebook and Uber (both United States) expanding into that country and India’s Bharti Airtel continued to invest.
The country’s inflows nonetheless recorded a 14 per cent decline compared with 2016. Foreign telecommunication companies now must list at least a quarter of their equity on the local stock exchange, an effort by the Tanzanian Government to increase domestic ownership.
The slump in FDI flows to Africa was due largely to weak oil prices and lingering effects from the commodity bust, as flows contracted in commodity-exporting economies such as Egypt, Mozambique, the Congo, Nigeria and Angola. Foreign investment to South Africa also contracted, by 41 per cent.
South–South investment in this industry, particularly from Asian investors into Africa, is significant; however, the largest projects are highly concentrated in a few countries like Ethiopia.
Prospects FDI inflows to Africa are forecast to increase by about 20 per cent in 2018, to hit $50 billion. The projection is underpinned by the expectations of a continued modest recovery in commodity prices and macroeconomic fundamentals.
In addition, advances in interregional cooperation, through the signing of the African Continental Free Trade Area (AfCFTA) agreement, could encourage stronger FDI flows in 2018.
Infrastructural projects in East Africa are likely to increase more flows in to the region. The Mombasa–Nairobi section of the standard-gauge railway in Kenya was completed in 2017, and the project which is 90 per cent financed by the Exim Bank of China and constructed and operated by China Road and Bridge Corporation has a plan to continue to eventually connect several East African countries.
The Addis Ababa–Djibouti Railway was inaugurated on 1 January 2018, administered by a joint venture between Ethiopia (75 per cent stake) and Djibouti (25 per cent stake). Until the end of 2023, all operations on the new railway will be jointly undertaken by two Chinese companies, State-owned China Railway, and privately owned China Civil Engineering Construction.
The Ethiopia–Djibouti joint venture will take over operations in 2024, until which time the local staff is being trained with Chinese assistance. Construction began in 2017 on a regional oil pipeline to transport oil produced in landlocked Uganda – by Total E&P (France), Tullow Oil (United Kingdom) and China National Offshore Oil Corporation – to Tanzania for export.