Africa investment perceptions ‘shifting’


7 May 2012

Inward investment into Africa has more than doubled over the last decade as investor perceptions of the continent have begun to shift, but a significant perception gap still remains to be closed, according to Ernst & Young’s second African Attractiveness Survey, released last week.

According to the survey, growing optimism and confidence among international investors saw new foreign direct investment (FDI) projects into Africa growing from 339 in 2003 to 857 in 2011 – with new project numbers in 2011 almost back up to the levels last seen in 2008, before the global financial crisis hit.

The mind-shift has been shared, and to some extent led, by African investors themselves, with intra-African investment increasing exponentially, from 27 new FDI projects in 2003 to 145 in 2011 – 17% of all new FDI projects on the continent last year.

Sixty percent of the 505 global executives surveyed by Ernst & Young said perceptions of Africa as a business location had improved over past three years, with three-quarters of them predicting further improvements in the continent’s attractiveness over the next three years.

Ernst & Young forecast overall African gross domestic product (GDP) growth of between 4% and 5% per annum over the next decade, with FDI into Africa reaching US$150-billion by 2015.

Perception gap ‘remains to be closed’

While the survey paints an overall positive picture of growing confidence in Africa’s prospects, the results also highlight a stark difference in perception between CEOs who already have a business presence in Africa and those who do not.

“Of those who believe that Africa’s growth prospects in the near term are significantly positive, half have a dedicated Africa strategy in place, and 92% have an active business presence on the continent,” Ernst & Young said in a statement last week.

The perception gap is reflected in the fact that, despite the positive African growth story – including strong GDP and FDI growth forecasts for the next decade – “the continent still only attracted 5.5% of global FDI projects in 2011.

“While this is up from 4.5% last year and is, in fact, the highest proportion of global FDI that Africa has ever received, reservations remain among those who have not yet invested into the continent.”

Ajen Sita, Ernst & Young managing partner for Africa, noted that the continent as a whole was still attracting fewer FDI projects than India and far fewer than China.

“There is still clearly work to be done by Africans – government and private sector alike – to better articulate and ‘sell’ the growth story and investment opportunity for foreign investors,” Sita said.

Intra-African investment leads the way

A key highlight of Erns & Young’s report is the growing self-belief and commitment by Africans to move the continent forward, reflected in the substantial growth of intra-African investment.

Between 2003 and 2011, according to the survey, there has been 23% annual compound growth in intra-African investment into new FDI projects. This growth has been accelerating, with the growth rate up by 42% since 2007.

This growth is being led “by the respective regional powerhouses of Kenya, Nigeria and South Africa,” Ernst & Young said.

“All three of these African economies are ranked among the top 20 investors into the rest of the continent between 2003 and 20011, and since 2007 the growth rate in investment from Kenya, Nigeria and South Africa has been 78%, 73% and 65% respectively.

Sita said there had 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.

“Clearly work still remains to be done, but pushing ahead with key initiatives such as regional integration and investment in infrastructure will ensure that Africa remains on a sustainable growth curve.”

Increasing growth from developing countries

On the sources of Africa’s inward investment, the survey found that this came from across the world, with strong growth in project numbers from “rapid-growth” (or developing) and developed markets alike.

Among the former, India has led the way as the fourth-largest FDI investor by number of projects since 2003, with annual compound growth of 46% since 2007.

China and the United Arab Emirates remain prominent too, but there is high growth in investment from an increasingly diverse range of other developing countries, with South Korea, Saudi Arabia and Turkey among those at the forefront.

“At the same time, and despite the challenges they face, there has also been robust growth in investment into Africa from many developed markets,” Ernst & Young said. “In the period from 2007 to 2011, UK project numbers have been up 27%, with the US and Germany also both increasing by 21%.”

According to Mark Otty, Ernst & Young managing partner for Europe, Middle East, India and Africa, the competition for global FDI is intensifying, with developing countries “not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda.

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

Moving beyond dependence on commodities

In addition, according to Ernst & Young, the growing diversification of FDI identified as a key trend in last year’s survey has continued this year “with even greater levels of investment into less capital-intensive sectors”.

This has resulted in a growing number of FDI projects in manufacturing, business services and sales, marketing and support, highlighting a shift away from the extractive commodity-based activities on which Africa has historically been dependent.

“In the midst of a global economy that is being reshaped, with growth and capital flows shifting from north to south and west to east, Africans have a unique opportunity to break the structural constraints that have marginalized the continent for decades, if not centuries,” Sita said.

SAinfo reporter