Foreign direct investment in Africa surges

Lagos, Nigeria (Capital Markets in Africa):- Africa is the world’s fastest-growing region for foreign direct investment, according to a report from fDi Intelligence, a data division of the Financial Times group. In a year when the global greenfield FDI market grew a paltry 1%, Africa enjoyed a 65% increase in capital investment in 2014 over the previous year, to an estimated USD 87bn.

The number of FDI projects in the continent rose 6%. The FDI growth was balanced between the two halves of the continent: capital investment into North Africa more than doubled from USD 10bn to USD 26bn while subSaharan Africa saw its investment levels rise from USD 42bn to USD 61bn.

FDI tends to be market-driven, and as a result economies that achieved strong economic growth in 2014 also received growing volumes of FDI, the report found. Africa registered 5% GDP growth in 2014, beating the global average by 1.5 percentage points. The World Bank and the IMF have both warned of a slight slowing of growth in Africa in 2015, to between 4% and 4.5%, because of falling commodity prices and the impact of the Ebola crisis, but a rebound to 5% is expected for 2016.

According to fDi Markets, a greenfield investment data service on which the report was based, 57% of companies investing in Africa cite domestic growth market potential as the top motive. However, capital investment into Africa remains, at its core, resource seeking, with oil and gas investments accounting for USD 33bn — roughly a third — of the total. Real estate was the second-most popular sector, attracting USD 12bn in investment, followed by communications at USD 6bn.

Egypt topped the league table for capital investment, with USD 18bn received, and saw a 42% increase in the number of FDI projects in 2014. Egypt’s FDI figures benefited from mega-projects in the energy sector, such as Greece-based Mac Optic’s plans to establish a USD 5bn petroleum refinery within the Suez governorate. But manufacturing also contributed. US-based Coca-Cola announced it would expand production capacity at its factory in Cairo and expects to double exports from the factory by 2017. The expansion is part of a wider USD 500m growth strategy focused on Egypt. Angola, the second-ranked country by capital investment, attracted USD 16bn more in 2014 than in 2013, mostly fuelled by oil and gas. Mozambique and Morocco saw the biggest increases in numbers of projects, at 67% and 59% respectively, although from a relatively small base. Mozambique — where the IMF is forecasting 7% GDP growth for 2015 — attracted USD 9bn in capital investment in 2014.

The biggest attraction was the real estate industry, bolstered by Belgium-based Pylos’s plans to build more than a dozen shopping malls around the country and South Africa-based Atterbury Property Developments’ plans for mixed-use developments in Pemba, Beira and Nacala. Morocco received USD 5bn, including a USD 2bn investment in its renewable energy sector by Shanghai Electric, which plans to establish five photovoltaic power generation facilities in the country as part of a wider expansion that will see the firm invest USD 16.5bn in solar-generation projects across seven Arab countries.

South Africa remains at the top of the list of destination countries measured by number of projects, but saw a 15% decline in 2014. On current trends, other faster-growing African countries have every chance to catch up with it, or even eclipse it. Africa’s infrastructure projects and continued investment in resources will support secondary growth in consumer and financial services sector. Notwithstanding the challenges experienced in recent times due to falling commodity prices we believe the continent will continue to experience robust growth.