THE role of foreign direct investment into the continent remains significant: on average the government budgets of African countries currently depend on corporates domiciled in other countries for 14% of their funding.
The risks of such high levels of dependence continue to be debated, in addition to related issues such as the real cost of tax avoidance to developing countries struggling to plug gaping holes or just make ends meet.
Recently the United Nations Conference on Trade and Development (UNCTAD) released its annual report (pdf) on foreign direct investment, from which Mail & Guardian Africa culled a few trends around cross-border deals into the region.
1— While foreign direct investment (FDI) globally fell 16% in 2014 from $1.47 trillion to $1.23 trillion, influenced by fragility in the world economy, policy uncertainty and geopolitical risks in some regions of Eurasia, in Africa FDI flows remained stable at $54 billion.
While this may come across as being flat, when you take out the 15% decline in FDI into North Africa, flows into sub-Saharan Africa actually rose 5% to $42 billion, riding out challenges such as Ebola, regional conflicts and falling commodity prices.
A decline in West and southern Africa was countered by a 33% and 11% growth in Central and East Africa respectively; which both accounted for $19 billion.
2— A lack of infrastructure and volatile regulation is often blamed for stymying foreign direct investment into least developed countries (LDCs), the majority (34) of which are found in sub-Saharan Africa, but flows into these countries increased 4% to $23 billion, helping raise Africa’s still-low but improved 4.4% share of world FDI. UNCTAD estimates that FDI into LDCs can quadruple by 2030, on the back of more international investment.
3— While multinationals from Nigeria and South Africa invested less in Africa in the year under review, at $13 billion, they actually raised their FDIs abroad, such as Woolworth’s $2.14 billion buy of Australian department store David Jones. Other intra-African investments also rose significantly during the year, helping boost regional numbers. South African transnationals tended to invest in telecoms, retail and mining, while those from Nigeria, where the outlook is cloudy due to low oil prices, largely focused on financial services.
4— Developing economies are now the world’s largest investor region—they hold a 35% share of global FDI, or $468 billion, which represents a 23% increase on 2013 figures. China is now the second largest investor after the US, and its heft in Africa was apparent—five of the 10 economies where its influence is felt most strongly were in Africa, using a measure known as the relative bilateral FDI intensity. Korea’s influence was most felt in Madagascar, and Brazil in Angola, with which they share cultural links.
5— In addition to home government policies and historical connections, geography has a direct impact on the flow of Africa FDI. Of the 10 countries that most felt the “intensity” of South African outward flows, nine were in sub-Saharan Africa, including all six of the countries it shares a border with.
6— FDI into services has been gradually but steadily dominating the cash globally, edging out manufacturing and the primary sectors—such as extractives and agriculture. Africa is not left out—while most of the growth in primary industries took place in the region (nearly six-fold to $22 billion), services, including in the fast-growing mobile telephony, now account for the largest share of flows in the region, at $37.5 billion last year, or 48% of the total. Notably highest was “business services”, a wide field that includes offshore financial activities.
7— African investors are also increasingly investing more in other countries. Investors from the region put seven times more money into primary greenfield (starting from scratch) FDI projects, at $48 million, and grew investment in services by $100 million to $9.49 billion. But of the total $13.39 billion that African investors sunk into global greenfield projects, $10.2 billion were in Africa, even if a decline from the $13 billion invested last year in the region.
The potential is huge—UNCTAD identified over 500 African service multinationals. Africa also saw cross-border Mergers and Acquisitions (M&As) grow from just $130 million in 2013 to $2.4 billion last year.
8—FDI flows into developing economies are projected to reach $707 billion this year from $681 billion in 2014, and to touch $850 billion by 2017. Two-thirds of executives polled by UNCTAD, the majority with large multinationals that count more than $1 billion in revenues, expected flows into Africa to grow, the highest optimism of any region, as slow global growth makes emerging markets more attractive.
9— The likes of South Africa, Angola, Nigeria and Libya would be readily recognised as top home economies for outward flows. Nigeria for example invested $1.3 billion in greenfield projects in other countries, while it is the largest host country for FDI on the continent, but it is the country ranked fifth that would not be an obvious choice—Togo. The tiny West African nation saw an inflow of $500 million, linked to its ubiquitous pan-African Ecobank lender.
10— FDI seemingly does not like vacuums. As multinationals from developed economies divested from the continent, those from developing economies quickly moved in to fill the lacunae. The UAE’s Emirates Telecommunications Corp. for example took up a 53% stake in Itissalat Al Maghreb SA, a foreign affiliate of Vivendi for $5.7 billion; Chinese and Indian firms were active in Algeria and South Africa; and the Qatar National Bank shelled out $500 million for a stake in Ecobank.