The United Nations Conference on Trade and Development (UNCTAD) projects that foreign direct investment (FDI) in Africa will continue lagging with a marginal increase in 2021.
However, a rise in demand for commodities and new opportunities following the restructuring of the global value chain (GVC), the approval of key projects and the impending finalization of the African Continental Free Trade Area (AfCFTA) agreement’s Sustainable Investment Protocol could lead to investment picking up greater momentum by 2022.
FDI flows to Africa have shifted over the past decade with new sources of investment having emerged and new sectors expanding.
In the years from 2014 and 2018, China was Africa’s biggest FDI source estimated at 16 per cent of all FDI into the continent. The Chinese represented the main source of FDI into the continent with the United States and France holding eight per cent of the total FDI.
With Covid-19 hitting the continent in March 2020, the cascading health and economic challenges on the continent has significantly affected FDI inflows.
UNCTAD notes in its latest World Investment Report that the share of Africa in the FDI inflows into developing economies declined from 6.3 per cent to 5.9 per cent.
“Although most countries and regions within the continent were affected, foreign investment inflows were particularly impacted in resource-dependent economies.”
FDI inflows to North Africa contracted by 25 per cent to US$10 billion, down from US$14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, albeit with a significant reduction (-35 per cent) to US$5.9 billion in 2020.
In Sub-Saharan Africa (SSA), FDI inflows decreased by 12 per cent to US$30 billion, with investment growing in only a few countries. In West Africa, inflows to Nigeria increased slightly, from US$2.3 billion in 2019 to US$2.4 billion. The average price of crude oil dropped by 33 per cent in 2020,3 and lower demand along with supply-side constraints caused by the slowdown in site development restricted FDI to the country in the first half of 2020. Despite the pandemic, the long-term policy of FDI diversification appears to have had some impact
Interestingly, Central Africa which has lagged behind in many economic fronts was the only region in Africa to register an increase in FDI in 2020, with inflows of US$9.2 billion, as compared with US$8.9 billion in 2019. Increasing inflows in the Republic of the Congo (by 19 per cent to US$4.0 billion) helped prevent a decline.
Investment in the country was buoyed by flows in offshore oil fields after the completion of Phase 2 licensing round of available oil blocks in 2019. FDI also grew in the Democratic Republic of Congo and Gabon (by 11 per cent each), to US$1.6 billion and US$1.7 billion, respectively. In the Democratic Republic of Congo, inflows in mining supported FDI, as prices for cobalt increased with rising demand for its use in smartphones and electric car batteries.
Similarly, Gabon registered robust inflows in the oil industry, as the adoption of its new Petroleum Code in 2019 led to several new offshore production-sharing agreements, some of which materialized in 2020. Inflows were relatively stable in Chad, decreasing only 2 per cent to US$558 million. FDI to the country remained overwhelmingly concentrated in natural resources.
East Africa which has weathered many economic tumults has seen FDI to the region drop to US$6.5 billion, a 16 per cent decline from 2019.
Ethiopia, despite registering a 6 per cent reduction in inflows to US$2.4 billion, accounted for more than one-third of foreign investment to the sub-region. Although the Ethiopian economy suffered from the pandemic, especially in hospitality, aviation and other services, it still grew a substantial 6.1 per cent. The manufacturing, agriculture and hospitality industries drew the highest shares of investment in 2020. The Government initiated a programme to facilitate foreign investment in the manufacturing of personal protective equipment (PPE), and several Chinese firms have already started production. FDI to the United Republic of Tanzania was largely unchanged at US$1.0 billion.
FDI to Uganda decreased by 35 per cent to US$823 million, compared with US$1.3 billion in 2019, as work on the Lake Albert oil project slowed due to the pandemic as well as disagreements between the Government and oil companies on the development strategy. The approval of the US$3.5 billion East African Crude Oil Pipeline project, which will result in the construction of a 1,400 km pipeline from Uganda to the Tanga seaport in the United Republic of Tanzania, augurs well for investment to both countries. FDI to Somalia increased marginally at 4 per cent to hit US$464 million. The country launched a new investment promotion strategy in 2020 that outlined 10 priority areas for foreign investment, including livestock, fisheries, energy and manufacturing.
Southern Africa saw FDI decrease by 16 per cent to US$4.3 billion, with Mozambique and South Africa accounting for most inflows. In Angola, repatriation of capital by MNEs in the oil and gas industry slowed, and the country registered net inflows of -US$1.9 billion, as compared with -US$4.1 billion in 2019. Inflows were steady in Mozambique, increasing by 6 per cent to US$2.3 billion.
The implementation of the US$20 billion investment led by Total (France) in the liquefied natural gas (LNG) project in the country slowed but continued, despite the pandemic and other challenges. FDI to South Africa, in contrast, decreased by 39 per cent to US$3.1 billion. South Africa has borne high human and economic costs due to the pandemic, and the country’s GDP is estimated to have dropped by 8 per cent in 2020.
Cross-border M&As in South Africa dipped significantly (by 52 per cent, to US$2.2 billion) but still accounted for a large part of total inflows. The largest investment realized in 2020 was PepsiCo’s acquisition of Pioneer Foods after the Competition Tribunal of South Africa approved the deal. The acquisition, announced in 2019, is worth US$1.7 billion, to be disbursed over several years.
FDI outflows from Africa fell by two thirds in 2020 to US$1.6 billion, from US$4.9 billion in 2019.
The highest outflows were from Togo (US$931 million). Investment from that country was largely directed to other African countries. For example, Afrik Assurances opened operations in Benin and Côte d’Ivoire in the financial services industry.
Outflows from Ghana (US$542 million) and Morocco (US$492 million) were also significant, although they dropped by 8 and 45 per cent, respectively, compared with 2019. In addition to the intracontinental investment, OFDI from Morocco also included investments in France. Outward investment from South Africa, traditionally a key investor, was negative (-US$2.0 billion) as South African MNEs repatriated capital from foreign countries.