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Assessing risk and opportunity in Africa

Foreign direct investment (FDI) into sub-Saharan Africa has grown at a compound rate of 22.3% between 2007 and 2012. For companies seeking to grow and investors seeking higher returns, the African growth story has stood out.

However, Africa remains a complex and challenging environment in which to do business, and making well informed choices about which markets to enter and via which mode is crucial. This is according to EY’s Africa by numbers: Assessing risk and opportunity in Africa report, released today.

The report seeks to stress the importance of having fact-based conversations about Africa, informed from a basis of rational analysis rather than anecdotes and conjecture. It is a follow up to EY’s flagship Africa attractiveness report, and profiles eight of the most popular investment destinations across different parts of the continent, assessing their top five investors for FDI, top performing sectors, FDI outlook, and providing a breakdown of active infrastructure projects. The diverse group of countries, most of which have experienced strong compound growth in FDI projects over the past five years, are: Cameroon, Egypt, Ethiopia, Ghana, Kenya, Mozambique, Nigeria and South Africa.

EY Africa CEO Ajen Sita says: “It is no longer enough to just look at numbers when one considers which markets to enter on the continent. The sheer size of the continent can prove daunting and different sets of rules, regulations, stakeholders and market dynamics exist across each of the continent’s 54 countries. This report provides a useful and factual guide to support companies in shifting the emphasis from developing a growth strategy for Africa to accelerating the execution of that strategy.”

A related report by EY, entitled Positioning South Africa in the context of the Africa growth story, draws on the data from Africa by numbers to assess how South Africa is doing from an FDI perspective relative to other African markets. Contrary to perceptions that South Africa is losing ground both in terms of its gateway status and competition for FDI, the EY research shows that there remains an overwhelming preference for South Africa as a business and investment destination and that there has been a robust growth in levels of FDI projects into South Africa. Over the period of 2007-2012, FDI projects into South Africa have grown substantially at a compound rate of 22.4%, well above the average for the African continent as a whole. This growth is also off a relatively large base in comparison to most other countries; in fact, in 2012, South Africa attracted more than twice as many FDI projects as any other country in Africa.

Michael Lalor, lead partner for the Africa Business Center at EY, says: “There has been strong growth in FDI projects into many parts of sub-Saharan Africa over the past five years, and this is indicative of the continent’s rising status as an investment destination. Our analysis shows that South Africa has been very much part of this story, and remains by far the most important destination and hub for
investment into the continent across a range of sectors.”

The longer term outlook remains relatively positive

Although the trend in South Africa’s FDI numbers has been positive, there is a strong probability that we will see a dip this year. Factors such as labour unrest, ratings downgrades and the current account deficit, will have an effect. At the same time, the ongoing malaise affecting the global economy directly affects the South African economy and will also negatively affect FDI flows. The report, however, does anticipate that growth in the global economy will begin to pick up in 2014, and the long term outlook for South Africa’s growth (around the 4% mark) is relatively positive when benchmarked against a selection of other developed and emerging economies.

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