Below is an excerpt from EY’s latest Africa Attractiveness report.
Asia-Pacific investors are bullish on Africa
In a sign of diversification of Africa’s investors, investment from the Asia-Pacific region into Africa hit an all-time high in 2016, accounting for more than a fifth of projects and more than half of capital investment. Companies from the Asia-Pacific region were also the largest contributors to FDI jobs to Africa. In recent years, China and Japan have been competing with other Western countries – including the US, to build influence on the continent.
China-sourced FDI into Africa increased dramatically in 2016. With a 106% jump in projects, China became the third largest investor in the continent. In fact, this was the highest level of FDI from China across all three metrics, (namely projects, capital investment and jobs) since our Africa Attractiveness Programme began. Almost a quarter of Chinese FDI projects were directed toward Egypt. In January 2016, the Chinese President Xi Jinping, visited Egypt during which his country committed to a US$700m loan to the National Bank of Egypt. China is also planning $15bn of investments across 15 electricity, infrastructure and transport projects in Egypt. Across Africa, Chinese investors took an active role in the technology, media and telecommunications (TMT), automotive and business services sectors in 2016.
In the case of Japan, the country directed 27 FDI projects to Africa in 2016, more than double the 12 FDI projects in 2015. Both capital investment and jobs created increased during the two years, up 757% and 106%, respectively. South Africa was the single largest destination for Japanese investors, accounting for more than one-third of projects, followed by Egypt and Tanzania. By sector, there was an uptick in FDI in TMT and diversified industrial products (DIP). In recent years, Japan has deepened ties with Africa in a bid to secure resource supplies and in return, fulfil the continent’s demand for infrastructure. In August 2016, Japanese Prime Minister Shinzo Abe announced $30bn in investment to Africa, including about $10bn committed toward electricity generation projects and for the upgrading urban transport systems and ports.
The US remains Africa’s leading investor
The US continued to be the leading investor in Africa, accounting for 13.5% of inward investment projects. In 2016, companies from the US invested in 91 projects down 5.2% creating 11,430 jobs. South Africa (28 projects) continued to be the key target of US-based companies, with Morocco (14 projects) and Egypt (13 projects) outpacing Kenya (11 projects) to become the second- and third-largest recipients of US investment, respectively. By sector, nearly a quarter of US FDI was in TMT, down 11.5% from 2015 levels. FDI projects, however, increased in the CPR and transport and logistics sectors.
In previous editions of the Africa Attractiveness Survey, we highlighted how the US is competing to maintain and build its influence on the continent. The renewed African Growth and Opportunity Act (AGOA) has been one of the more visible measures. However, speculation that President Donald Trump’s foreign policy may be more insular than his immediate predecessor, is creating some uncertainty regarding the future of the US’ engagement with Africa. Any potential impact on levels of US FDI in Africa will be evaluated later in the year.
UK investment drops, while French investment recovers
In line with previous years, Western Europe continued to be the largest regional investor in Africa in 2016, making up 37.7% of FDI projects and 13.3% of capital investment. The UK, which has led Western European investment in Africa since 2010, saw its share of FDI projects ease from 10% in 2015 to 6.1% in 2016. The more notable decline was in FDI jobs, down by a significant 81.4%. The Brexit vote at the end of June 2016 and the resulting uncertainty seem to have had an immediate impact on UK investment into Africa. Governments across the continent will need to redefine their trade and investment relations with a post-Brexit UK. Most of the existing trade arrangements that African countries have with the UK have been negotiated through the EU.
In contrast to the UK, France moved up the rankings, becoming the second-largest investor. France invested in 81 FDI projects in 2016, up 39.7% on 2015, with total investment of $2.1bn, and creating 8,087 jobs. French companies were particularly active in the TMT, business services and CPR sectors. Morocco remains the favourite destination, getting 27.2% share of FDI projects, with higher project numbers also in South Africa (12.4% share), Cote d’Ivoire (12.4%) and Tunisia (8.6%).
With a 50% increase in FDI projects, Switzerland became the seventh-largest investor in Africa, up from 10th position in 2015. Swiss investors were particularly strong in CPR (18.5% of FDI projects), followed by RHC, and transport and logistics with a 14.8% share each. Nigeria and South Africa were the largest destinations for Swiss FDI projects, securing 14.8% each, followed by Morocco (11.1%).
Intra-African investment: Fewer projects and jobs, lower capital investment
After hitting an all-time high in 2013, the share of intraregional investors in FDI projects has continued to ease. It stood at 15.5% in 2016, down from 18.9% in 2015. This is in line with the weakest growth across sub-Saharan Africa in nearly two decades. Latest estimates are that sub-Saharan Africa’s growth in 2016 was likely only 1.4%, with two of the three-largest economies in recession (Angola and Nigeria) and South Africa only growing marginally. South Africa outpaced Kenya to resume the role of being Africa’s largest intra-regional investor. This change in rankings was a result of a sharp decline in Kenya’s outbound FDI projects in 2016, from 36 to 14.
Investors from Morocco also became more prominent in 2016, initiating 17 intra-regional investments – the highest in over a decade. This fits in with a broader attempt by Morocco to diversify its economy away from an over-reliance on Europe, including rejoining the African Union in January 2017, after an absence of more than three decades. Morocco’s largest banks have made a strong push south over the past decade.