The UN trade agency sees the FDI rebound emanating from modest oil price rises and a potential upturn in non-oil FDI. Growing regional integration should foster Africa’s competitive global integration and encourage stronger FDI flows, Unctad notes in the World Investment Report 2017.
According to the document, foreign direct investment (FDI) flows to Africa continued to decline in 2016, by three per cent to US$59 billion with Tanzania among countries contributing to the decline.
“Flows to the United Republic of Tanzania shrank by 15 per cent to US$1.4 billion amid concerns about the country’s regulatory environment and tax policies towards foreign firms,” the agency notes in the report.
In a recent review of the report, Tralac Researcher Talkmore Chidede says FDI flows to the continent continue to decline despite efforts by many governments to boost the stocks of investments.
FDI inflows remained unequally distributed across the continent in 2016– with only five countries (Angola, Egypt, Nigeria, Ghana and Ethiopia) hosting 57 per cent of continent’s total FDI inflows, while Africa accounts for 3.4 per cent share of global FDI.
East Africa received US$7.1 billion in FDI during the year, 13 per cent more than in 2015. Unctad says that the aggregate increase masked divergent FDI performance within the sub-region.
Flows to Ethiopia rose by 46 per cent to US$3.2 billion, propelled by investments in infrastructure and manufacturing. FDI was also buoyant in Mauritius, thanks to a variety of services investments and in Madagascar, in the context of a continued recovery since the decline in 2014.
FDI into Kenya continued its decline, slumping by 36 per cent to US$394 million in 2016 – only slightly more than a quarter of its 2011 level – despite investment reforms and a supportive domestic policy environment. Yet the trading value on Kenya’s liquid stock exchange overtook that of Nigeria’s exchange for the first time last year.
“UNCTAD projects that inward FDI to Africa will increase by about 10 per cent in 2017, to almost US$65 billion, based on modest oil price rises and a potential increase in non-oil FDI,” reads the report.
“These projections take into consideration current FDI projects in Africa, among these are the US$900 million purchase of a stake in Tullow Oil in Uganda by a French oil company (Total), the launch of a US$3.3 billion joint venture by the Africa Finance Corporation in Nigeria, and the US$759 million automotive plant by Beijing Automotive International Corporation in South Africa as well as South Africa’s Harith General Partners infrastructure fund to create one of the biggest pan-African energy companies – and, linked to this, are the multiple prospective infrastructure investments initiated by Chinese firms,” it adds.
UNCTAD also notes that the current inter- and intra-regional integration negotiations by African countries (such as the economic partnership agreements with the European Union, the Tripartite Free Trade Agreement and the Continental Free Trade Area) are expected to encourage FDI inflows to the continent.
Globally, flows of foreign direct investment fell by about two per cent, to US$1.75 trillion. Investment in developing countries declined even more, by 14 per cent, and flows to least developed countries (LDCs) and structurally weak economies remain volatile and low.
UN Secretary General António Guterres says that although UNCTAD predicts a modest recovery of FDI flows in 2017–2018, they are expected to remain well below their 2007 peak. The top diplomat considers these developments as troublesome, especially considering the enormous investment needs associated with the Sustainable Development Goals.
According to him, progress on sustainable development – and lasting peace – requires more investment in basic infrastructure, energy, water and sanitation, climate change mitigation, health and education, as well as investment in productive capacity to generate jobs and income growth.
“Now more than ever it is important to ensure that the global policy environment remains conducive to investment in sustainable development. UNCTAD plays an important role in this, by providing guidance on national and international investment policy regimes,” he wrote in the report.
Its Investment Policy Framework and Roadmap for Reform of International Investment Agreements have been used by more than 130 countries in formulating a new generation of investment policies.