World Investment Report reveals Foreign Direct Investment in Africa is at a decade low

Foreign Direct Investment (FDI) in Africa is at a 10-year low, as revealed by the World Investment Report. According to the United Nations Conference on Trade (UNCTAD) 2018 World Investment Report, FDI flows to Africa slumped to $42 billion in 2017, a 21 percent decline from 2016. Mostly due to weak oil prices and aftermaths from the commodity bust from larger commodity-exporting economies which saw flows contract.

This development underscores the importance of a conducive global investment environment, characterized by open, transparent and non-discriminatory investment policies. In the North African region, FDI flows were down 4 percent to $13 billion. Investment in Egypt was down, though the country maintained its status as the largest recipient in Africa. FDI In Morocco was up 23 percent in 2017 to $2.7 billion, largely because of ample investments in the automotive sector.

Unlike its Northern counterparts, FDI flows to Central Africa decreased by 22 percent to $5.7 billion. Also, in West Africa, FDI flows fell by 11 percent to $11.3 billion, thanks to Nigeria’s lingering depressed economy. In Nigeria only, FDI fell 21 percent to $3.5 billion.

Dubbed Africa’s fastest growing region, East Africa, in 2017, received a $7.6 billion in FDI. This, however, was a 3 percent decline from the previous year. Currently holding the title of second largest recipient of FDI in Africa, Ethiopia absorbed nearly half of the FDI gotten by East Africa with $3.6 billion investment, though it registered a slight dip in the amount of Foreign Direct Investment for 2017.

Strong domestic demand and inflows into information and communication technology (ICT) sectors helped boost FDI to Kenya as the country saw an increase to $672 million, up 71 percent. In Tanzania, the strong gold price and a diversified productive structure contributed to FDI inflows worth $1.2 billion with Facebook and Uber expanding into the country and pumped investment from India’s Bharti Airtel.

Southern Africa was not lucky in 2017, as FDI declined by 66 percent to $3.8 billion. FDI to South Africa fell 41 percent to $1.3 billion due to an underperforming commodity sector and political uncertainty. Meanwhile, neighbouring Zambia witnessed an FDI increase which was supported by an increased investment in copper.

The report predicts that advances in interregional cooperation, through the signing of the African Continental Free Trade Area (AfCFTA) agreement that ensures that all African Union countries involved would share in the welfare gains estimated to be about 2.64 percent of the continental GDP of $65 billion, could encourage stronger FDI flows in 2018.

FDI is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. These foreign direct investments include mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans.