Liberalisation spurs FDI to Africa

Liberalisation spurs FDI to Africa

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DESPITE the depressed global economic environment, foreign direct investment (FDI) inflows to Africa are expected to rise in 2016. The increase, according to the UN Conference on Trade and Development (Unctad), is due to liberalisation measures in the region and some privatisation of state-owned enterprises.

In its latest World Investment Report released early October, Unctad says FDI inflows to Africa could return to a growth path in 2016, increasing by an average of 6 per cent to $55–60 bn. ‘This bounce-back is already becoming visible in announced greenfield projects in Africa. In the first quarter of 2016, their value was $29bn, 25 percent higher than the same period in 2015,’ the report said.

The biggest rise in prospective investments are in North African economies such as Egypt and Morocco, but a more optimistic scenario also prevails more widely, for example in Mozambique, Ethiopia, Rwanda and the Tanzania.

However, depressed conditions in oil and gas and in mining continue to weigh significantly on GDP growth and investment across Africa. The rise in FDI inflows, judging by 2015 announcements, will mostly occur in services (electricity, gas and water, construction, and transport primarily), followed by manufacturing industries, such as food and beverages and motor vehicles.

‘Multi-national enterprises (MNEs) are indeed showing great interest in the African auto industry, with announced greenfield capital expenditure into the industry amounting to $3.1bn in 2015. Investment into Africa’s auto industry is driven by industrial policies in countries such as Morocco, growing urban consumer markets, improved infrastructure, and favourable trade agreements,’ the report said.

Major automotive firms are expected to continue to expand into Africa. Peugeot-Citroen and Renault (France) and Ford (United States) have all announced investments in Morocco, Volkswagen and BMW (Germany) in South Afric, Honda (Japan) in Nigeria, Toyota (Japan) in Kenya, and Nissan (Japan) in Egypt.

To reduce the vulnerability of Africa to commodity price developments, countries are reviewing policies to support FDI into the manufacturing sector. East Africa has already become more attractive in this sector as a source and investment location, especially in light manufacturing.

MNEs are therefore investing across Africa for market-seeking and efficiency-seeking reasons.

Proximity can be beneficial too, says the report. Bahrain, France, Italy, the United Arab Emirates and the United Kingdom remain prominent as investors, but closeness to major markets in Europe and West Asia is also attracting export-oriented investors from East, South and South-East Asia, which are focusing on locations in North and East Africa such as Ethiopia.

Liberalisation of investment regimes and privatisation of state-owned commodity assets should also provide a boost to inflows. In Algeria, for example, Sonatrach SPA, the state-owned oil and gas company, intends to sell its interest in 20 oil and gas fields located in the country. Similarly  in Zambia, the government is bundling state-owned businesses into a holding company and trying to attract foreign buyers.

The report also notes other liberalisation measures, including the removal of further restrictions on foreign investments in most African countries. ‘Kenya has moved to abolish restrictions on foreign shareholding in listed companies as competition for capital heats up among Africa’s top capital markets. The move comes just a year after Tanzania lifted a 60 percent restriction on foreign ownership of listed companies, permitting full foreign control,’ it adds.

 

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