Growth of FDI flows into the African continent

The African continent has experienced remarkable increase in the number of foreign direct investment (FDI) amid rising confidence about the future amongst international and African investors.

This is captured in the second Ernst & Young’s African Attractiveness Survey released this week. The survey results point out strong growth in the number of new FDI projects in 2011. The number of African FDI projects has recovered close to levels last seen in 2008.

The survey said Africa has in the last decade seen an increase in inward investment from 339 new projects in 2003 to 857 in 2011, an increase of 153%. This FDI flow originates from different corners of the world but Asian originated investment has shown significant growth. India has led the way as the fourth largest FDI investor by number of projects since 2003 with annual compound growth of 46% since 2007. China and the UAE remain prominent too, but there is high growth in investment from an increasingly diverse range of other rapid growth markets, with South Korea, Saudi Arabia and Turkey among those at the forefront.

Intra-African investment has also been a key driver of this growth. Between 2003 and 2011, there has been 23% annual compound growth in intra-African investment into new FDI projects. This growth has been accelerating, with the growth rate up by 42% since 2007.

The growth in intra-African investment is led by the respective regional powerhouses of Kenya, Nigeria and South Africa. All three of these African economies are ranked among the top 20 investors into the rest of the continent between 2003 and 20011, and since 2007 the growth rate in investment from Kenya, Nigeria and South Africa has been 78%, 73% and 65% respectively.

Ajen Sita, Managing Partner: Africa at Ernst & Young, said “There has been a radical shift in mindset and positioning over the last decade, with Africans themselves increasingly leading from the front by providing African solutions to Africa’s challenges.  Clearly work still remains to be done, but pushing ahead with key initiatives such as regional integration and investment in infrastructure will ensure that Africa remains on a sustainable growth curve.”

Mark Otty, Area Managing Partner Ernst & Young Europe, Middle East, India and Africa says, “With rapid-growth markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda, the competition for global FDI is intensifying. African countries must position themselves appropriately in this shifting landscape to attract a greater proportion of the investment that will accelerate growth and development.”

Overall this year’s survey paints a positive picture reflecting growing confidence in Africa’s prospects. Sixty percent of survey respondents say that their perception of Africa as a place to do business has improved over the past three years. Looking forward 73% of respondents anticipate that Africa’s attractiveness will improve over the next three years, while only 4% believe it will deteriorate.

Of those who believe that Africa’s growth prospects in the near term are significantly positive, half have a dedicated Africa strategy in place, and 92% have an active business presence on the continent.

The survey also highlighted the growing diversification of FDI as a key trend. Greater levels of investment are going into less capital intensive sectors, resulting in a growing number of FDI projects in manufacturing, business services and sales.

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