South Africa remains the leading foreign direct investment (FDI) destination in Africa, with a 6.9% increase in FDI projects in 2016, according to financial services advisory firm EY’s latest ‘Africa Attractiveness’ report, published earlier this month.
The report provides an analysis of FDI into Africa over the past ten years. The 2016 data shows that Africa attracted 676 FDI projects – a 12.3% decline from the previous year. FDI job creation numbers declined by 13.1%.
However, capital investment increased by 31.9%.
The key ‘hub’ economies – South Africa, Egypt, Kenya, Morocco and Nigeria – collectively attracted 58% of the continent’s total FDI projects in 2016.
Morocco regained its place as Africa’s second-largest FDI recipient, with a 9.5% increase in projects. Egypt was third, attracting 19.7% more FDI projects than the previous year.
The continentwide surge in capital investment was primarily driven by capital-intensive projects in two sectors, namely real estate, hospitality and construction; and transport and logistics.
The continent’s share of global FDI capital flows increased from 9.4% in 2015 to 11.4%, making Africa the second-fastest-growing FDI destination by capital.
However, heightened geopolitical uncertainty and ‘multispeed’ growth across Africa present a mixed FDI picture for the continent.
“This somewhat mixed picture is not surprising to us. Investor sentiment towards 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,” says EY Africa CEO Ajen Sita.
While investors with an existing presence in Africa remain positive about the continent’s longer-term investment attractiveness, they are also “cautious and discerning”, he adds.
However, the diversification of Africa’s FDI souces is ongoing, with more than one-fifth of FDI projects and more than half of capital investment into Africa coming from Asia-Pacific in 2016.
Most notably, Chinese FDI into Africa increased dramatically. This made the country the single largest contributor of FDI capital and jobs in Africa in 2016.
Although foreign investors still favour the key hub economies in Africa, new FDI destinations are emerging, with Francophone Africa and East Africa becoming markets of interest, according to the report.
West Africa’s second-largest economy, Ghana, remains a key FDI market, despite recording a 31.7% decline in FDI projects in 2016 and weak growth in recent years.
The country’s improving macroeconomic environment and strong governance record have resulted in Ghana’s rise to fourth position in the EY Africa Attractiveness Index (AAI). The index was introduced in 2016 to measure the relative investment attractiveness of 46 African economies based on a balanced set of shorter- and longer-term metrics.
Côte d’Ivoire also features among the top ten countries of the AAI and a 21.4% increase in FDI projects in 2016 illustrates that it is becoming a country more favoured by investors.
Senegal has also emerged as a potential major FDI destination, although this is not reflected in its current FDI numbers. However, the country ranks eighth on the AAI, owing to its diverse economy, strong strides in macroeconomic resilience and progress in its business environment improvements.