SA capital increasingly claiming African stake

The much talked about movement of South African capital beyond the north of the Limpopo River seems to have taken off earnestly.

That picture emerges from the latest investment survey conducted by consulting firm Ernst & Young. The Ernst & Young 2013 Africa Attractiveness Survey shows South Africa to be leading foreign direct investment (FDI) flows in the continent and outpacing the emerging giants from the East, China and India.

The survey revealed that despite a fall in FDI 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 African continent’s global share of FDI has also grown from 3.2% in 2007 to 5.6% in 2012.

The Ernst & Young report noted significant growth in intra-African investment flows. Ajen Sita, Ernst & Young’s Africa Managing Partner said “There is a growing confidence and optimism among Africans themselves about the continent’s progress and future.”

South Africa has been at the forefront of growth in intra-African trade and broader emerging market investment. South Africa was positioned as the single largest investor in FDI projects in 2012 outside its own country border.

The Ernst & Young report said 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 which scored 237 projects between 2007 and 2012. In this five years South Africa registered 235 projects, 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.

Ernst & Young said intra-African investment has been particularly impressive during the same period, growing at 33% compound rate. Kenya and Nigeria have also invested heavily but it is expected that others such as Angola, with a US$5b sovereign wealth fund, will become increasingly prominent investors across the continent over the next few years.

Mark Otty, Ernst & Young’s EMEIA Managing Partner said “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.

The survey found that 86% 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.

The survey also noted significant 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 noted Ernst and Young, 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. In contrast, those with no business presence in Africa are far more negative about Africa’s progress and prospects”.

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