The latest UNCTAD World Investment Report 2011 reports that global foreign direct investment (FDI) flows rose moderately to US$1.24 trillion in 2010, but were still 15% below their pre-crisis average. This was in contrast to global industrial output and trade, which were back to pre-crisis levels.[hidepost=9][/hidepost]
UNCTAD estimates that global FDI will recover to its pre-crisis level in 2011, increasing to $1.4 trillion – $1.6 trillion, approaching its 2007 peak in 2013.
Notable was that for the first time, developing and transition economies together attracted more than half of global FDI flows. Not so good news was the observation that some of the poorest regions continued to see declines in FDI flows. Flows to Africa, least developed countries, landlocked developing countries and small island developing states all fell, as did flows to South Asia.
Inflows to Africa, which peaked in 2008 amidst the resource boom, continued their downward trend in 2010, although there were significant sub-regional variations. In SSA for example, while many smaller economies saw increases, the big drop was driven by heavyweights South Africa and Nigeria, while Angola also saw a notable drop in FDI. For the region as a whole, FDI in 2010 stood at $55 billion, 9% down from $60 billion in 2009. Other developing regions performed considerably better, leading Africa’s share of FDI inflows among developing countries to fall from 12% in 2009 to 10% in 2010.
Inflows to North Africa account for roughly one third of the total in Africa. These fell for the second year running, although the rate of decline was much reduced and the picture uneven.
In West Africa, the two largest recipients had contrasting fortunes: inflows increased significantly in Ghana, but not enough to compensate for the large fall in Nigeria. In both countries, the major factor was the oil industry. In Nigeria, uncertainty over the Petroleum Industry Bill – which is perceived as unfavourable for multinationals – and the unresolved political problems in the Niger Delta, discouraged foreign investors. As for Ghana, the start of major oil production has attracted the interest of multinationals, some of which are seeking an alternative sub-regional source of oil to Nigeria.
Looking at Southern Africa, UNCTAD notes that inflows fell by 24%. One of the two major recipients in the sub-region, South Africa, saw its inflows fall by over 70% to $1.6 billion from $5.4 billion, a level amounting to one-sixth of the peak recorded in 2008. Inflows to Angola, the region’s largest recipient, fell by 15%. Although the decline was large, the inflow levels achieved in 2008 ($16.6 billion) and 2009 ($11.7 billion), when there had been major investments in oil and agriculture, were perhaps not sustainable, considering that inflows to Angola had been just over $5 billion in 2003 when the civil war ended.
In Central Africa and East Africa, inflows of FDI increased in 2010 to reach $8 billion and $3.7 billion, respectively. The inflows to the larger recipients in Central Africa were mostly due to oil-related investments. The only significant instance of FDI in non-primary sectors was investment in telecommunications in the DRC.
East Africa’s increase was modest (2.5%), as inflows to the subregion’s largest recipient, Madagascar, fell substantially (19%). FDI to the subregion’s two other large recipients, Uganda and Tanzania, have tended to be stable in recent years and held broadly steady in 2010.
Regarding the outlook, the report concluded that it would require a major upturn in Sub-Saharan Africa to reverse the downward trend of FDI inflows to the continent. Data on FDI projects (greenfield investments and cross-border M&A deals) for the first few months of 2011 showed a 9% rise over the same period of 2010 in Africa as a whole, but this rise was mainly driven by a large investment in Ghana. Overall, then, 2011 is likely to be another challenging year for FDI inflows to Africa.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.