Foreign investment in Africa more than doubled in 2014, new data show - and surprise, resources don't take lion's share


While political risk perception remains a challenge, investors see huge growth opportunities, study shows

FOREIGN investment in Africa surged in 2014, fuelled in part by higher spending in North Africa as worries about the Arab Spring recede, according to a study by Ernst & Young.

Total foreign investment in Africa rose to $128 billion in 2014, more than double the level the prior year, the report said.

The continent accounted for 17.1% of global foreign investment in 2014, making it the second biggest region after Asia Pacific, which had 36.2% of investment.

Heavy investment flowed to Egypt for major projects, including to expand the Suez Canal, add capacity to Cairo’s metro system and build new port facilities.

“North Africa is becoming more attractive for investors as political uncertainty following the Arab Spring is beginning to fade,” said James Newlands, a senior partner at Ernst & Young.

Real estate, hospitality and construction comprised the biggest share of foreign direct investment in Africa with about 44%, with coal, oil and natural gas second with 25%.

The study also pointed to several key perception challenges impeding further investment. Of 501 businesses surveyed by Ernst & Young, 55% cited political instability as an obstacle to investment.

Other major barriers include corruption, weak security, the lack of infrastructure and the lack of skilled workers, according to the survey.

African leaders have been at pains to reassure investors that the region is working on reducing its risk perception, as opportunities burgeon especially in meeting the continent’s huge infrastructure deficit.

Internal ability
This adds to efforts to build the region’s ability to fund its own growth, as deals with private investors surge.

“People perceive risk in Africa as greater than it actually is, but the narrative is changing,” former UK premier Gordon Brown said at the recent World Economic Forum on Africa.

A major attraction for private investors was the structuring of projects, Patrick Dlamini, the CEO of the Development Bank of Southern Africa said at the event,

“Private investors want to see crystallization of a project—how viable is it? How has the risk been mitigated? We cannot afford to have white elephants in Africa.” 

“There is enough money, all investors need is to see how well-prepared and well-structured a project is.” 

Risk guarantors were ready to make African projects more attractive, Keiko Honda, the vice president of the Multilateral Investment Risk Agency also said, noting that “slicing risk” by various players was necessary.

Leaders at the African Union summit early this week also sought to push the message that the continent was improving its economic climate, as the region unveiled a Tripartite Free Trade Area that would offer an even bigger market to investors.

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