Where is FDI going?
FDI into Africa peaked during 2008, then subsequently declined as a result of the global financial crisis.
Of all the FDI targeted at developing countries last year, Africa garnered an estimated 12%. According to the most recent data compiled by the United Nations Conference on Trade and Development (UNCTAD), the biggest inflows during 2010 (most recent complete data) were directed to oil-rich economies (Algeria, Angola, Egypt, Ghana, Nigeria and Libya). In general, the countries receiving the lowest amounts of FDI also recorded the highest volume of outward investment.
FDI inflows totalled US$55 billion in 2010, of which 30% went to north Africa and another 27.5% flowed into southern Africa. According to the World Investment Report 2011, the extent of intra-regional FDI in Africa is limited. Judging from data on FDI projects, intra-regional FDI accounts for only 5% of the total in terms of value and 12% in terms of number.
Who wants to invest and in what?
There are several sectors looking to Africa for opportunity. These include companies operating in mature economies with low or no growth, that need to find new ways to grow, companies operating in the high-growth Brazil, Russia, India and China (BRIC) markets, looking to fuel their growth, companies looking for intra-Africa trade opportunities and companies already operating in Africa that are looking to expand their footprint on the continent.
KPMG has identified three main categories of opportunity in Africa – infrastructure, resources and consumer demand.
There is a need for personal banking services, small and medium-size business financing, micro-finance, development finance and opportunities for trade finance houses.
The food and drinks sector needs to expand to keep up with the rapid rate of urbanisation and the needs of this growing middle class, as does the retail sector. Formal retail penetration is among the lowest in the world throughout most of Africa, providing significant opportunities for the sector.
Considering investing in Africa?
When considering the opportunities and challenges in Africa, it is important to remember:
Africa is a continent and not a single country. There are 55 countries at different stages of development with different agendas. However, the majority of these belong to regional groupings, which implies different cross-border arrangements between states, depending on membership of these groups.
Africa is not isolated and is rather, an integral part of the global interconnected world. This implies that, whatever happens, the global economy affects Africa, and issues in the developed world impact Africa.
The key issue here is the risk/reward balance which investors need to understand. Investment-grade countries like South Africa, Botswana and Namibia might offer lower returns than seen elsewhere on the continent, though this is associated with a lower risk. Other countries with higher risk like Nigeria, Tanzania and Kenya could offer higher rewards in return.
Regardless of who the investor is, Africa continues to offer numerous opportunities in the post-global financial crisis world, though the options are as varied as the countries themselves.
Dapo Okubadejo is director and head of financial advisory services at KPMG in Nigeria