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FDI into Africa accelerates as investor perceptions begin to shift

Growing optimism and confidence among international investors has lead to significant inward investment into Africa over the last decade, according to Ernst & Young’s second African Attractiveness Survey.

The report, obtained here Thursday by PANA, combines an annual analysis of investment into Africa since 2003, with a survey of 505 global executives on their views about how and where investment will take place in the next decade and predicts that Africa is poised to enter the premier league of investment destinations.

According to the report, there was strong growth in the number of new foreign direct investment (FDI) projects in Africa in 2011 with project numbers almost up to levels last seen in 2008.

It said that in the last decade, Africa has seen an increase in inward investment from 339 new projects to the continent in 2003 to 857 in 2011 (an increase of 153%). Investment has come from across the world, with strong growth in project numbers from rapid-growth markets and developed markets alike with projects from the former increasing from 99 to 319 and developed markets projects from 240 to 538 since 2003.

Intra-African investment has also been a key driver of this growth.

Among rapid growth markets, India has led the way as the fourth largest FDI investor by the number of projects since 2003 with an annual compound growth of 46% since 2007. China and the United Arab Emirate remain prominent too, but there is high growth in investment from an increasingly diverse range of other rapid growth markets, 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. In the period from 2007 to 2011, UK project numbers have risen 27%, with the US and Germany also both increasing by 21%.

Mark Otty, Area Managing Partner Ernst & Young Europe, Middle East, India and Africa, says, “With rapid-growth markets not only dominating investor attention and capital flows, but also playing an increasingly strategic role in defining the global economic agenda, the competition for global FDI is intensifying. African countries must position themselves appropriately in this shifting landscape to attract a greater proportion of the investment that will accelerate growth and development.”

Overall, this year’s survey paints a positive picture reflecting growing confidence in Africa’s prospects. Sixty percent of survey respondents say that their perception of Africa as a place to do business has improved over the past three years. Looking forward, 73% of respondents anticipate that Africa’s attractiveness will improve over the next three years, while only 4% believe it will deteriorate.

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.

The survey results do, however, also highlight that there is stark difference in perception between those who already have a business presence in Africa and those who do not.

This perception gap is reflected in the fact that, despite the positive African growth story, and Ernst & Young forecasting that growth in the region will remain at a robust rate of four and five percent per annum in the next decade and that FDI into Africa to reach US$150 billion by 2015, 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 amongst those who have not yet invested into the continent.

Ajen Sita, Managing Partner: Africa at Ernst & Young, comments “Despite high optimism, high growth and high returns, the perception gap still exists and the African continent as a whole still attracts 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.”

The growth in intra-African investment is being led by the respective regional powerhouses of Kenya, Nigeria and South Africa. 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.

Last year’s African Attractiveness Survey highlighted the growing diversification of FDI as a key trend. This has continued this year with even greater levels of investment into less capital intensive sectors, resulting in a growing number of FDI projects in manufacturing, business services and sales, marketing and support highlighting the shift away from extractive activities on which Africa has historically been dependent.


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