FDI flow to Africa declines, UN report

Foreign Direct Investment (FDI) flows to Africa slumped to $42 billion in 2017, a 21% decline from 2016, says World Investment Report 2018.

The report launched by United Nations Conference on Trade (UNCTAD) stated that weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw flows contract in Egypt, Mozambique, the Congo, Nigeria, and Angola. In addition, foreign investment to South Africa continued to underperform.

FDI inflows to diversified exporters, including Ethiopia and Morocco, were more resilient. FDI outflows from Africa rebounded by 8 per cent to $12 billion. The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area (AfCFTA) agreement, should encourage stronger FDI flows – to about $50 billion – in 2018, provided the global policy environment remains supportive.

Inflows Strong diversified investment into Morocco contrasted with declines in FDI to the rest of North Africa – the only sub-region yet to surpass its 2007 peak.

FDI flows to North Africa were down 4 per cent to $13 billion. FDI into Morocco was up 23 per cent to $2.7 billion, thanks to considerable investment into new car technologies (electrical, battery, cameras). By the end of 2017, the Government had confirmed 26 auto industry investments worth $1.45 billion, including a deal with Renault (France) to increase local sourcing of components to 55 per cent. FDI into the country’s financial sector also expanded, as banking relations with China deepened.

In addition, Uber (United States) expanded operations in both Morocco and Egypt. Despite a decline in FDI of 9 per cent, Egypt continued to be the largest recipient in Africa with $7.4 billion.

Inflows were supported by a large increase in Chinese investment across light manufacturing industries and wide-ranging economic reforms beginning to pay off: financial liberalization, for instance, fostered more reinvestment of domestic earnings.

FDI flows to Tunisia remained flat at $0.9 billion, a 1 per cent decline from 2016.

Nonetheless, improved investment incentives following the promulgation of the recent investment law, as well as new legislation on public-private partnerships, supported inflows from Belgium’s Windvision into the country’s renewable energy industry, as well as FDI in the electronics, software and IT industries from French and regional investors.

FDI into Algeria, which depends heavily on investment in oil and gas, fell 26 per cent to $1.2 billion, despite the bundle of incentives offered by the country’s new investment law. Diversification was supported by FDI from Huawei (China) to help with Houari Boumediene Airport in Algiers and from Samsung (Republic of Korea), which opened its first smartphone assembly plant in the country.

Proposed amendments to the energy law could increase foreign participation in the country’s oil sector considerably in the future, if successfully implemented. FDI flows in the Sudan remained stable at $1.1 billion. The country is largely reliant on Chinese investment into its oil sector and the reaching of an agreement with South Sudan to access its once-productive oil fields.

The lifting of United States sanctions on the Sudan in 2017 should help increase FDI, according to the Report.