FDI inflows to Africa could return to a growth path in 2016, increasing by an average of 6 percent to $55–60 billion
FDI inflows to Africa could return to a growth path in 2016, increasing by an average of 6 percent to $55–60 billion. This bounce-back is already becoming visible in announced greenfield projects in Africa. In the first quarter of 2016, their value was $29 billion, 25 per cent higher than the same period in 2015. The biggest rise in prospective investments are in North African economies such as Egypt and Morocco, but a more optimistic scenario also prevails more widely, for example in Mozambique, Ethiopia, Rwanda and the United Republic of Tanzania.
Depressed conditions in oil and gas and in mining continue to weigh significantly on GDP growth and investment across Africa. The rise in FDI inflows, judging by 2015 announcements, will mostly occur in services (electricity, gas and water, construction, and transport primarily), followed by manufacturing industries, such as food and beverages and motor vehicles. MNEs are indeed showing great interest in the African auto industry, with announced greenfield capital expenditure into the industry amounting to $3.1 billion in 2015. Investment into Africa’s auto industry is driven by industrial policies in countries such as Morocco, growing urban consumer markets, improved infrastructure, and favourable trade agreements. Major automotive firms are expected to continue to expand into Africa: PSA Peugeot-Citroen and Renault (France) and Ford (United States) have all announced investments in Morocco; Volkswagen and BMW (Germany) in South Africa; Honda (Japan) in Nigeria; Toyota (Japan) in Kenya; and Nissan (Japan) in Egypt.
To reduce the vulnerability of Africa to commodity price developments, countries are reviewing policies to support FDI into the manufacturing sector. East Africa has already become more attractive in this sector as a source and investment location, especially in light manufacturing. MNEs are therefore investing across Africa for market-seeking and efficiency-seeking reasons. Proximity can be beneficial, so Bahrain, France, Italy, the United Arab Emirates and the United Kingdom remain prominent as investors; but closeness to major markets in Europe and West Asia is also attracting export-oriented investors from East, South and South-East Asia, which are focusing on locations in North and East Africa such as Ethiopia.
Liberalization of investment regimes and privatization of State-owned commodity assets should also provide a boost to inflows. In Algeria, for example, Sonatrach SPA, the State-owned oil and gas company, intends to sell its interest in 20 oil and gas fields located in the country. Similarly, in Zambia, the Government is bundling State-owned businesses into a holding company and trying to attract foreign buyers.
Photo: Africa (Public Domain from Pixabay.com)
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