PRESS RELEASE
- lobal share of FDI up but project numbers down in 2012
- African GDP expected to be 4% in 2013 and 4.6% in 2014
Africa’s
share of global foreign direct investment (FDI) has grown over the past
five years highlighting the growing interest from foreign investors,
according to Ernst & Young’s third Africa Attractiveness Survey , released today.
The
report combines an analysis of international investment into Africa
over the past five years with a 2013 survey of over 500 global business
leaders about their views on the potential of the African market. The
latest data shows that despite a fall in project numbers from 867 in
2011 to 764 in 2012 — in line with the global trend — project numbers
are still significantly higher than anything that preceded the peak of
2008. The continent’s global share of FDI has also grown from 3.2% in
2007 to 5.6% in 2012.
Mark
Otty, Ernst & Young’s EMEIA Managing Partner comments, “A process
of democratization that has taken root across much of the continent;
ongoing improvements to the business environment; exponential growth in
trade and investment and substantial improvements in the quality of
human life have provided a platform for the economic growth that a large
number of African economies have experienced over the past decade.”
Despite
the impact of the ongoing global economic situation, the size of the
African economy has more than tripled since 2000. The outlook also
appears positive, with the region as a whole expected to grow by 4% for
2013 and 4.6% for 2014. A number of African economies are predicted to
remain among the fastest growing in the world for the foreseeable
future.
Eighty-six
percent of those with an established presence on the continent believe
that Africa’s attractiveness as a place to do business will continue to
improve. Those surveyed rank Africa as the second most attractive
regional investment destination in the world after Asia.
Increasing investment from emerging markets
Investment
in FDI projects from developed markets fell by 20%. Although FDI
projects from the UK grew (by 9% year-on-year), those from the US and
France — the other two leading developed market investors in Africa —
were considerably down. In contrast investments from emerging markets
into Africa grew again in 2012, continuing the trend over the past three
years.
In
the period since 2007, the rate of FDI projects from emerging markets
into Africa has grown at a healthy compound rate of over 21%. In
comparison investment from developed markets has grown at only 8%. The
top contributors from the emerging markets are India (237), South Africa
(235), the UAE (210), China (152), Kenya (113), Nigeria (78), Saudi
Arabia (56) and South Korea (57) all among the top 20 investors over
that period.
Intra-African
investment has been particularly impressive during the same period,
growing at 33% compound rate. South Africa has been at the forefront of
growth in intra-African trade and broader emerging market investment –
(the single largest investor in FDI projects in 2012 outside of South
Africa.) Kenya and Nigeria have also invested heavily but it is expected
that others such as Angola, for example, with a US$5b sovereign wealth
fund, will become increasingly prominent investors across the continent
over the next few years.
Ajen
Sita, Ernst & Young’s Africa Managing Partner comments, “There is a
growing confidence and optimism among Africans themselves about the
continent’s progress and future.”
There
has also been an important shift in emphasis in investment into the
continent over the past few years, in terms of both destination markets
and sectors. While investment into North Africa has largely stagnated,
FDI projects into Sub-Saharan Africa have grown at a compound rate of
22% since 2007. Among the star performers attracting growing numbers of
projects have been Ghana, Nigeria, Kenya, Tanzania, Zambia Mozambique,
Mauritius and South Africa.
Perception versus reality
Our
2013 Africa Attractiveness Survey shows some progress in terms of
investor perceptions since the inaugural survey in 2011. The majority of
respondents are positive about the progress made and the outlook for
Africa. Africa has also gained ground relative to other global regions.
In 2011 Africa was only ranked ahead of two other regions, while this
year it ranked ahead of five other regions (the former Soviet States,
Eastern Europe, Western Europe, the Middle East and Central America).
However,
there still remains a stark perception gap between those respondents
who are already doing business in Africa versus those that have not yet
invested in the continent. Those with an established business in Africa
are overwhelmingly positive. They understand the real rather than
perceived operational risks, have experienced the progress made and see
the opportunities for future growth. Eight-six percent of these business
leaders believe that Africa’s attractiveness as a place to do business
will continue to improve, and they rank Africa as the second most
attractive regional investment destination in the world after Asia.
In
contrast, those with no business presence in Africa are far more
negative about Africa’s progress and prospects. Only 47% of these
respondents believe Africa’s attractiveness will improve over the next
three years, and they rank Africa as the least attractive investment
destination in the world.
The
two fundamental challenges that are present for those already present
or those looking to invest in Africa are transport and logistics
infrastructure and anti-bribery and corruption. However, moves are being
made on both accounts to help allay fears of investors.
Infrastructure
gaps, particularly relating to logistics and electricity, are
consistently cited as the biggest challenges by those doing business in
Africa. At a macro level, too, Africa’s growth will be inherently
constrained until the infrastructure deficit is bridged. The flip side
of this challenge, however, is that strong growth has been occurring
despite such infrastructure constraints. This indicates the potential to
not only sustain, but accelerate growth as the gap is narrowed. Our
analysis indicates that in 2012 there were over 800 active
infrastructure projects across different sectors in Africa, with a
combined value in excess of US$700b. The large majority of
infrastructure projects are related to power (37%) and transport (41%).
Moving away from extractive industries
Due
to volatile nature of commodity prices, an over-dependency on a few key
sectors clearly raises questions about the sustainability of growth.
Despite perceptions to the contrary, less than one third of Africa’s
growth has come from natural resources.
The
trend of growing diversification continues, with an ever increasing
emphasis on services, manufacturing and infrastructure-related
activities. In 2007 extractive industries represented 8% of FDI projects
and 26% of capital invested in Africa; in 2012, it was a mere 2% of
projects and 12% of capital. In comparison, services accounted for 70%
of projects in 2012 (up from 45% in 2007), and manufacturing activities
accounted for 43% of capital invested in 2012 (up from 22% in 2007).
Mining
and metals is still perceived by survey respondents as the sector with
the highest growth potential in Africa, but the number of respondents
who believe this (26%) is down from 38% in 2012 and 44% in 2011. In
contrast, interest in African infrastructure projects is clearly
increasing, with 21% of respondents identifying this as growth sector
versus 14% last year and only 4% in 2011. Other sectors where there has
been a noticeable shift include ICT (14%, up from 8% last year),
financial services (13%, up from 6% last year), and education (which has
come from virtually nowhere to register 10% this year).
Mark
comments, “These changing perceptions of relative sector attractiveness
in Africa reflect the changing fundamentals of many Africa economies:
the diversification of both sources of growth (for example, the
increasing contribution of services and the growing consumer class), and
of the actual FDI flowing into these economies.”
South Africa most attractive for foreign investors but others hot on its heels
The
large majority of respondents view South Africa as the most attractive
African country in which to do business: 41% of all respondents put
South Africa in first place, while 61% included it in their top three.
The primary reasons for South Africa’s popularity appear to be it
relatively well developed infrastructure, a stable political environment
and a relatively large domestic market. The next most popular countries
were Morocco (20% placing in the top three, and 8% in first place),
Nigeria (also 20% in top three, and 6% in first place), Egypt (15% top
three and 5% first), and Kenya (15% top three and 4% first). In general,
these rankings align with emerging regional hubs for doing business
across different parts of Africa.
Looking ahead
Ajen
concludes, “With an increasingly solid foundation of economic,
political and social reform, together with resilient growth rates, we
are confident that the continent as a whole is on a sustainable upward
trajectory. This direction of travel, rather than the current
destination, is what is most important.
“A
critical mass of African economies will continue on this journey.
Despite the fact that there will undoubtedly be bumps in the road, there
is a strong probability that a number of these economies will follow
the same development paths that some of the Asian and other Rapid Growth
Markets have over the past 30 years. By the 2040s, we have no doubt
that the likes of Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and
South Africa will be considered among the growth powerhouses of the
global economy.”
Distributed by African Press Organization on behalf of Ernst & Young.