Foreign Direct Investment To Africa Surging: Report

on May 03 2012 4:17 PM
Copper mine in Zambia
Equinox Minerals copper/gold mine in Lumwana, Zambia Reuters

Foreign direct investment (FDI) to Africa soared last year, according to a report from Ernst & Young, the accounting firm.

Long ignored by foreign investors, African nations received about $80 billion of FDI in 2011, a 27 percent jump from the prior year. On a global basis, Africa now accounts for almost one-fourth of total FDI.

Ernst & Young projects that by 2015, money flowing to Africa will reach $150 billion, which will create 350,000 new jobs annually.

Africa’s manufacturing, infrastructure-related and services sectors have witnessed particularly strong inflows.

The number of FDI projects in Africa has more than doubled to 857 last year from 339 in 2003, Ernst & Young said. While the US and UK are the top investors in Africa, India and China are also aggressively seeking business opportunities on the continent.

The competition for global FDI is intensifying, said Mark Otty, the Ernst & Young partner who oversees Africa, Middle East and India.

African countries must position themselves appropriately in this shifting landscape to attract a greater proportion of the investment that will accelerate growth and development.

Intra-African projects are also on the rise – the number of such FDI projects between African neighbors spiked to 145 in 2011 from just 27 in 2003.

There has been a radical shift in mindset and positioning over the last decade, with Africans themselves increasingly leading from the front by providing African solutions to Africa's challenges, said Ajen Sita, Ernst & Young's managing partner for Africa.

However, Ernst and Young noted that Africa still suffers from a poor image among many foreign investors – although this is largely dictated by lack of knowledge or experience with respect to doing business in Africa.

For those respondents with no business presence in Africa, the continent is viewed as by far the least attractive investment destination in the world, the report stated.

Michael Lolar, head of Africa Business Centre at Ernst and Young's Johannesburg office told BBC: There are challenges, but we need to start having a different conversation about Africa where we focus on the positive stories. For us, the story of Africa is a story of progress, growth, a story of political and economic vibrancy.”

Moreover, investments in Africa are not spread out evenly. Of the 50 countries on the continent, only ten nations (led by South Africa, Egypt and Morocco) accounted for more than 70 percent of all new FDI projects in Africa between 2003 and 2010.

Overall, Ernst & Young declared that Africa “has great strengths, including an abundance of natural resources and a large workforce, plus significant growth potential.” However, the firm added that Africa is challenged by a scarcity of high-skilled workers, small market sizes and weak infrastructure.

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