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Foreign direct investment to Africa fell by 21pc in 2017, says United Nations report

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FOREIGN direct investment (FDI) flows to Africa slumped to $42bn in 2017, a 21 percent decline from 2016, according to UNCTAD’s World Investment Report 2018.

Weak oil prices and harmful ongoing macroeconomic effects from the commodity bust saw flows contract in major host African economies.

‘The beginnings of a commodity price recovery, as well as advances in interregional co-operation through the signing of the African Continental Free Trade Area agreement, could encourage stronger FDI flows to Africa in 2018, provided the global policy environment remains supportive,’ UNCTAD Director, Division on Investment and Enterprise, James Zhan said.

FDI flows to North Africa were down 4 percent to $13bn. Investment in Egypt was down, but the country continued to be the largest recipient in Africa. FDI in Morocco was up 23 percent to $2.7bn, including as a result of sizeable investments in the automotive sector.

Lingering effects from the commodity bust weighed on FDI to sub-Saharan Africa, with inflows declining by 28 percent, to $28.5bn. FDI flows to Central Africa decreased by 22 percent to $5.7bn. FDI to West Africa fell by 11 percent to $11.3bn, due to Nigeria’s economy remaining depressed. FDI to Nigeria fell 21 percent to $3.5bn.

East Africa, the fastest-growing region in Africa, received $7.6bn in FDI in 2017, a 3 percent decline on 2016. Ethiopia absorbed nearly half of this amount, with $3.6bn (down 10 percent) and is now the second largest recipient of FDI in Africa. Kenya saw FDI increase to $672 million, up 71 percent, due to strong domestic demand and inflows in information and communication technology sectors.

In Southern Africa, FDI declined by 66 percent to $3.8bn. FDI to South Africa fell 41 percent to $1.3bn, due to an underperforming commodity sector and political uncertainty. FDI into Angola turned negative once again (down to -$2.3bn from $4.1bn in 2016) as foreign affiliates in the country transferred funds abroad through intra-company loans. In contrast, FDI into Zambia increased, supported by more investment in copper.

Multinational enterprises (MNEs) from developed economies (such as the United States, United Kingdom and France) still hold the largest FDI stock in Africa. At the same time, developing-economy investors from China and South Africa, followed by Singapore, India and Hong Kong (China), are among the top 10 investors in Africa.

FDI outflows from Africa increased by 8 percent to $12.1bn, reflecting a significant increase in outward FDI by South African firms (up 64 percent to $7.4bn) and Moroccan firms (up 66 percent to $960 million). Outward FDI by Nigerian firms, in contrast, remained flat at $1.3 billion, focused almost exclusively on Africa.

FDI inflows to Africa are forecast to increase by about 20 percent in 2018 to $50bn. The projection is underpinned by the expectations of a continued modest recovery in commodity prices and strengthened interregional economic cooperation. Yet Africa’s commodity dependence will cause FDI to remain cyclical.

 

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