Africa is becoming more attractive to investors and Foreign Direct Investment (FDI) projects have steadily grown over the past five years in the continent, Ernst & Young said on Monday, as the firm released its third Africa Attractiveness Survey.
The report contains 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.
“A process of democratisation 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,” said Mark Otty, Ernst & Young’s EMEIA Managing Partner.
The firm said 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,” the firm said.
In its survey, Ernst & Young said eighty-six percent of those with an established presence on the continent believe 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.
The firm said 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,” the firm said.
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.
“There is a growing confidence and optimism among Africans themselves about the continent’s progress and future,” said Ajen Sita, Ernst & Young’s Africa Managing Partner.
The report said 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.
During an online press conference from South Africa early on Monday, Michael Lalor, a lead partner of the Ernst & Young Africa Business Centre, who addressed African journalists, said poverty on the continent has drastically reduced though not a the space expected.
He said investors are more optimistic about Africa. He said Africa is now ranked ahead of five other regions (the former Soviet States, Eastern Europe, Western Europe, the Middle East and Central America).
He called on African leaders to pay attention to education, skill acquisition and the development of infrastructure.
The firm said two fundamental challenges that are present for those looking to invest in Africa are transport and logistics infrastructure and corruption.
Source: PM News