Lee-Roy Chetty
Lee-Roy Chetty

Investment flows back into Africa

Over the past 10 years, foreign direct investment (FDI) has helped boost sustainable economic growth in many African countries.

In theory, FDI can assist to accentuate productive capacity, employment and exports. When properly managed, it can also bring secondary benefits in the form of transfers of technology, management expertise and marketing skills.

With continued liberalisation and globalisation of markets, African countries are beginning to turn toward FDI as a source of capital inflows rather than relying on official development assistance (ODA).

According to the African Development Bank, annual FDI represented 15.9% of gross fixed capital formation during 2000-2010, compared to 7.2% during the 1990s. In fact, the annual average FDI inflows to Africa over the period 2005-2010 totalled $45.4 billion – almost three times higher than in the previous five years.

The sub-regions that benefited most were in North and West Africa. The latter attracting around 25% of the total annual FDI inflows to the continent.

Added to this, emerging economies such as China and South Korea gained ground as key investors in the continent. Particularly in the extractive sectors.

Within the African region, a country’s level of natural resources endowment (gas, oil, ores etc) is a key criterion for FDI. Data released by the UN Conference on Trade and Development (UNCTAD) in July 2012 reveal that Africa accounted on average for just 3.2% of total global annual FDI flows over the period 2005-2010, falling to a mere 2.8% in 2011.

In stark contrast with the previous year, which saw a strong recovery in Central Africa and a sharp decline in Southern Africa, large annual swings were recorded for a number of major FDI recipients, including South Africa, Nigeria, and Morocco.

The decline in FDI to Africa in 2011 reflected reduced inflows to North Africa, largely as a result of the political and social instability in Tunisia, Egypt, and Libya. North Africa posted a drop of 57.9% in 2011, while Central Africa registered a 10.9% decline for the same period.

In contrast, inflows to sub-Saharan Africa grew robustly in 2011, reaching an estimated $34.8 billion, a rise of 28.1% over the previous year. This partly reflected a rebound in investment to South Africa, as well as new natural gas development opportunities in Mozambique.

Apart from Southern Africa, the other major sub-region to benefit from FDI was West Africa, which witnessed a sharp 37.1% increase in inflows compared to the previous year, to reach $16.1 billion. The principal beneficiary countries were Nigeria and Ghana, which jointly attracted about three-quarters of the sub-region’s total FDI inflows. For East Africa, inflows increased by 7.2% compared to 2.1% in the previous year.

The primary sector — mainly the extractive industries — remains the traditional principal beneficiary of foreign direct investments.

The continents FDI prospects for 2012 are promising, according to the latest UNCTAD World Investment Report.

Africa’s robust economic growth, combined with high commodity prices and on-going economic reforms, have improved investor perceptions of the continent.

However, the outlook is tempered by on-going fragility in the global economy which could have transmission effects in Africa. As reported by the World Bank, external shocks are already impacting negatively on net private capital flows to developing countries in general, especially FDI flows.

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  • 34 Responses to “Investment flows back into Africa”

    1. By this robust increase in FDI, it seems like the world is not buying the ceaseless whinging of the DA supporters and their corporate media mafia constantly predicting doom and gloom in Africa. Anyway FDI data is just one of the many indicators of hope for SA and Africa in general.

      October 19, 2012 at 4:34 pm
    2. Sterling Ferguson #

      @What the author failed to mention that most of these investments were in the extraction of resources.

      October 19, 2012 at 7:15 pm
    3. SPECULATORS are NOT Investors – they buy existing assets, they do NOT create NEW business and NEW jobs!

      October 19, 2012 at 7:49 pm
    4. It is important to understand that these FDI’s are primarily investments in extracting mineral and other primary resources. NO ONE is investing in African manufacturing, or any other means of production. In other words, and not to beat about the hyper-sensitive African bush, the world’s major economies are not investing in the PEOPLE of Africa. There’s no money in that.

      African nations need to take a long, hard and critical look at it’s cultural weaknesses, and attempt to understand that attitudes towards the people of Africa prevail, and for good reason; it is not a continent – despite it’s highly convenient geographical location – conducive to doing productive business, to put it politely. Continued political strife and government incompetence, coupled with low productivity and high cost of management dissuades investors. The begging bowl mentality doesn’t do you all any favours either.

      These facts will be roundly dismissed, but they will stubbornly remain. And until you can HONESTLY evaluate your attitudes, you will continue to earn the scraps, and be incapable of competing at any level despite the unbelievable advantages you enjoy in the world’s market today.

      October 20, 2012 at 2:00 am
    5. jack sparrow #

      @Guinness; I’ll go with your general theme and agree that it seems that the bulk of the FDI investment is primarily for resource extraction and, in the case of quite a few countries, it’s a partnership between the politically connected elite and a foreign company (Chinese, Indian, Australian, Brazilian etc). Selling prices are artificially low and revenue is banked offshore. Infrastructure is for the extraction only. Minimal tax gets into the country’s coffers. The lions share of the well paid jobs are done by imports or ex pats. All the actual dispossessed residents get is an opportunity to do some menial work at slave wages. Welcome to Afrika!

      October 20, 2012 at 8:38 am
    6. beachcomber #

      See the latest Economist edition which describes the situation better than I could.

      October 20, 2012 at 9:38 am
    7. maggielou #

      Wow, with this ‘robustic’ increase in FDI, why is it that South Africa still has so many people living in abject poverty? Most of them will never in a life time be able to buy a vehicle. COL has risen exponentially and the middle class is getting poorer.

      October 20, 2012 at 10:36 am
    8. African #

      FDI is flowing into Africa but flowing out of SA? Why? Because SA is 30 years behind the rest of Africa in political thinking and leadership. While the rest of Africa is focusing on growth, good government and education, SA is back in the 1970’s with a government focussed on racial grievance, socialism, Cold War era anti-Westernism, wealth transfer rather than wealth creation and a sense of entitlement that other African countries have long left behind. The proof is in SA’s increasing economic underperformance compared with the rest of Africa.

      October 20, 2012 at 11:20 am
    9. Yaj #

      What we need more than FDI -which is only flowing to the extractive resources sector is DDI -domestic direct investment – generating and directing domestic local capital into renewable energy sectors, light manufacturing, public transport rail networks, local farming. This can only be achieved by a combination of capital controls through financial transaction tax, import tarriffs and state banks-not more liberalisation and neoliberal globalisation like this author seems to suggest. A levy on all financial transactions must REPLACE income tax and VAT.
      All future infrastructure must be funded from credit created by STATE banks and not borrowed at interest from PRIVATE banks/institutions. COMPRENDO??!!

      October 20, 2012 at 12:03 pm
    10. Sterling Ferguson #

      @Sparrow, in Moeletsi Mbeki’s book “Architects Of Poverty” He talks about how the African governments had setup an economies of extraction and only the top ten percent would benefit from it. He talks about how billion of dollars are being sent overseas by African elite and not invested in Africa. He was criticized by the top brass in the ANC and was called a bitter man. In SA to keep the masses happy, the ANC led government has put half of the population in SA on family grants that’s not sustainable.

      October 20, 2012 at 1:34 pm
    11. Yaj and Sterling

      We did used to beneficiate our minerals through our Socialist State parastatals like Sasol (coal) Sappi (forests) Iscor (iron/steel).

      The ANC sold the lot – mainly to their own elite. How do you think they became billionaires in less than 20 years without ever starting a business of their own?

      October 20, 2012 at 7:59 pm
    12. Yaj and Sterling

      Both Mbeki and Tutu were followers of the Malcolm X Jihadist version of Black Power, not the Martin Luther King (Jnr) version.

      When Tutu was asked what about the fact that the ANC was Communist, he said that Blacks were “too spiritual” to support Communism (ref: “Rabblerouser for Peace”)

      Which demonstrates that as a detribalised Fingo he had no real comprehension of Tribal Beliefs and Religion. Tribalism is entirely communist – all are “equally poor” except the Kings/Chiefs.

      October 20, 2012 at 8:17 pm
    13. Juju Esq. #

      Good comment Yaj. At least there is someone out there who understands how things should work.

      October 21, 2012 at 12:39 pm
    14. Enough Said #

      It looks as if Sterling Ferguson did not read the article again before opening his mouth:

      “Sterling Ferguson # @What the author failed to mention that most of these investments were in the extraction of resources.”

      @Ferguson – may I bring to your attention the paragraph number four from the bottom of this article by Lee-Roy Chetty –
      “The primary sector — mainly the extractive industries — remains the traditional principal beneficiary of foreign direct investments.”

      October 21, 2012 at 12:58 pm
    15. Yaj

      If anyone tried your bizarre ideas in SA everyone with money would move it out of the country to an interest earning, non government, bank anywhere else in the world.

      It does not matter how many times the obvious is pointed out to you – SA has a number of state banks that have all gone bankrupt under the ANC and VAT is the best tax collection system worldwide.

      October 21, 2012 at 4:43 pm
    16. Juju Esq. #

      Beddy – Yaj post is definitely too nuanced and sophisticated
      for the average South African. Present company included.

      October 21, 2012 at 8:23 pm
    17. Sterling Ferguson #

      @Enough Said, the author also spoke about Africa robust economic growth which isn’t true. You are pissed off because I keep talking about Africa is not creating industries around her resources. You said that the controllers of the world economies will not let Africa setup industries around her resources which isn’t true. What I am talking about doesn’t fit in with your left wing dogma. I read that quote and he is saying the same thing I have been saying about the African economies of extraction. So, what’s your problem with my comment?

      October 22, 2012 at 5:59 am
    18. Sterling Ferguson #

      @Beddy, are you talking about Detroit Red? This was what Malcolm X was known as before he went to prison.

      October 22, 2012 at 6:05 am
    19. Jack Sparrow #

      @Enough Said; I think what we are trying to point out is that this type of FDI does not benefit the country (or its people) very much. When the resources run ot or are not needed then what? Countries would be better served to create an environment where FDI is to provide goods and services on a local (Africa), then global basis. For this you need government to provide a good infrastructure, a well educated populace (I won’t mention labour laws) and facilitate business without incompetence and corruption. Africa does not do well in these areas. The type of FDI it receives just reinforces the lack of of the factors mentioned.

      October 22, 2012 at 7:35 am
    20. The Creator #

      It’s true that Chetty mentions extractive industries in an aside, but of course if he really focussed on what the investment is all about, his entire argument would collapse in a heap of bullshit, so it’s good that Ferguson pointed that out.

      By the way, Lyndall, as I’ve pointed out to you before, SASOL was privatised not by the ANC but by the apartheid regime (in 1980). And ISCOR was sold not to ANC cronies but to the Mittal family business in Britain (originally Indian but now multinational). Both stupid moves, of course.

      Still, this is a very stupid article. Chetty should be embarrassed to have his name at the top.

      October 22, 2012 at 9:34 am
    21. The Creator #

      Oh, and VAT is a highly regressive tax which obtains most of its revenue from the working class and middle class. And those state banks which have failed were often flourishing in the past, so their failure is a matter of bad appointments. And not all ANC banking appointments are bad — Mboweni was a much better Reserve Bank Governor than his predecessor, though I suspect Marcus is turning out a disaster (given her Barclays connections).

      October 22, 2012 at 9:37 am
    22. Sterling Ferguson #

      @Creator and Beddy, the flight of capital out of Africa by the African leaders is shocking. It has been estimated that over fifty billion annually is taken out of Africa to overseas banks. The Santos family in Angola, the ex-ruling family of Egypt, Mugabe and his cronies, late Abacha had 3.5 billions in the banks in Europe from Nigeria and the son of E. Guinea. If half of this money was invested in Africa that has been taken out of Africa, there would be an economic boom in Africa.

      October 22, 2012 at 5:40 pm
    23. Sterling

      You forgot Gaddaffi – he apparently has $300 billion stashed away outside the country. Plus he funded every dictator and war in Africa to try and become Emperor of Africa

      October 23, 2012 at 1:17 pm
    24. Sterling Ferguson #

      @Beddy, I have been told that the president Santo is not African but, Brazilian and he doesn’t know any African languages. Do you have any information on Santo?

      Yes! I forgot about this thief and the ex-president of Kenya that are worth billions.

      October 23, 2012 at 9:52 pm
    25. Noob #

      http://mg.co.za/article/2012-10-24-sas-foreign-direct-investment-drops

      How does the author reconcile his article with this one? Why are we bucking the trend so badly?

      October 24, 2012 at 4:11 pm
    26. Yaj #

      @ Lyndall Beddy

      Who says you cannot earn interest from your deposits at state banks. In fact you could earn more interest on your savings than from current private banks.That kind of competition would be great for the economy. Secondly, the state banks that have failed locally where not proper deposit-taking retail banks. These state banks have worked very well in China, India and Brazil and even in USA-The Bank of North Dakota .

      Furthermore , If you think my ideas are bizarre you need to educate yourself further , mate. I would like to refer you to the latest IMF study entitled The Chicago Plan Revisited where th economists are advocating monetary reform to full reserve banking whereby all new money is state-created and no longer created from thin air by private banks through the current fractional reserve system. They advocate this as a highly workable solution to the current global insolvency crisis of our current debt-based money system. You will soon realise that monetary reformers like myself are not as crackpot as has been depicted in the mainstream media after all. Just maybe you need to rethink some of your own out-dated and weird ideas.

      October 25, 2012 at 5:19 pm
    27. Sterling

      If you had managed to loot billions would you leave it in Africa? None of them do! I don’t know anything about Santos – sorry!

      October 26, 2012 at 9:24 am
    28. Yaj

      Your theories, like the theories of Marx, leave out human nature! We have state banks – all bankrupted by the ANC – the Post Office, the Land Bank, the Setas (who put money in Fidentia), the Road Accident Fund (bankrupted 3 times since the ANC took over, and never in the 50 years before that).

      October 26, 2012 at 11:57 am
    29. Sterling Ferguson #

      @Beddy, what is shocking, these African leaders will steal million from the government and put the money in Western banks. These same leaders will hold rallies and talk about the evil west where they have their money. What is more shocking, many of the masses will believe them and think they are honest leaders.

      October 27, 2012 at 5:47 pm
    30. Yaj

      It is not about banks, or governments, but about multi-nationals that are bigger than any government ,and the fact that shares are now used as security for old age in pension schemes, not money, not gold. Unless you let the multi-nationals continue to pollute the planet you have no savings and no security for your old age.

      Ask the Japanese who are one of the World’s Saving countries. First the money they saved in the banks devalued so much they could not afford to retire in their old age and had to keep working; and when they switched to buying shares instead of putting money into savings, the stock markets collapsed.

      October 28, 2012 at 4:09 pm
    31. Yaj

      You were on the radio again today about “fractional reserve banking”. Again you are missing the point. The money is linked to NO STANDARD which is why fractional reserve banking, and super inflation, can even take place. Which could not happen for the thousands of years that money was actual gold and silver and kept its value, nor even at the beginning of paper money when that was a “promissory note” equal to a state guarenteed certain amount of gold.

      October 29, 2012 at 8:02 pm
    32. Yaj

      the Real Danger in the World today is that shares in the planet polluting multi-nationals have become the new money standard, since the collapse of both gold and the dollar.

      “Growth” and jobs for the majority of the population of the world who now live in cities and pensions for old age all depend on these pollutants.

      They provide the growth and the jobs – but at the cost of the destruction of forests and farmland.

      The Afrikaner Socialist State used to have Protections but the ANC has trashed and sold the lot – like they have sold SAPPI (our state forests, which were farmed and harvested and protected natural forests)

      October 30, 2012 at 10:37 am
    33. Yaj

      No society can function without a money standard. The Black Africans originally used cowrie shells (only found in the Pacific and Indian Oceans) then Cattle in Sub Saharan Africa. Native Americans used clam shells. Native Americans from French Colonies would only trade beaver pelts with the Dutch, because the Dutch had clam shells and the French did not. Black Africans would trade anything for beads and cloth from the Arabs – because they had no means of manufacturing either.

      The mistake Europe made was to try to create a Union AND use the American dollar, not gold, as the standard for the currency of that Union. Not only did America delink its dollar from gold, it also conned the world that its sub prime mortgage loans were guarenteed by the Bank of America.

      October 31, 2012 at 2:27 am
    34. Yaj

      And we are not the only country that can do this. Tanzania owns most of the world’s tanzanite, Austalia a large amount of the world’s bauxite (aluminium). It would be much better to hold minerals in reserves, like the gold the Americans used to have in Fort Knox to back the dollar, than to hold paper money all of which is linked to the dollar when the dollar is no longer linked to anything of value.

      Not only will those minerals increase in value, but hopefully technology will improve and we will need less and less of them to survive.

      October 31, 2012 at 4:24 am

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