FDI into Africa continues to boom but investor perceptions slacken, EY finds

3 Jun 15

Foreign direct investment into Africa surged last year, creating 188,400 new jobs across the continent as projects signed the previous year became operational, EY’s annual survey has found.


The EY attractiveness survey analysed FDI flows into Africa since 2003 and polled over 500 global business leaders in over 30 countries about their views on the potential of the African market.

African businesses attracted $128bn in FDI in 2014, up 136% on the previous year, with the number of jobs created from capital investments jumping 68%, according to the report. Spurred by a handful of megadeals, the average investment increased to $174.5m per project, from $67.8m in 2013.

This upsurge was driven by large, capital-intensive energy extraction and real estate schemes, including a $16bn plan by French oil firm Total to develop the Kaombo offshore oil project in Angola, which is expected to produce 230,000 barrels per day from reserves estimated at 650 million barrels.

Greek investors also announced a $10bn deal to construct a new refinery and petrochemical plant in Egypt and the Nigerian government signed $5bn with SkyPower FAS Energy to build 3,000 megawatts of solar power in the country.

But as investment into Africa boomed, FDI projects in the continent fell 8.4% in 2014, compared to the previous year.

“In the past year, Africa has experienced stronger headwinds than in recent times. Economic expansion this year is likely to be at its slowest in five years, dragged down by the impact of lower oil prices on the Nigerian and Angolan economies, as well as South Africa’s sluggish growth,” the report said.

“Our survey reveals that investor sentiment has softened somewhat, and that FDI projects are down for a second consecutive year.”

The survey found that investor perceptions of Africa reached the lowest level since 2011. When asked about Africa’s attractiveness over the past year, only 53% of the respondents said it had improved, down from 60% in 2014.There was also a slight drop in confidence about the continent’s future investment attractiveness, the survey found.

As Africa’s perceived attractiveness declined, it lost its position as the world’s second-most attractive region (after North America and joint-second place with Asia), dropping to fourth place.

According to the report political risk factors, such as instability and corruption, remained the main barriers that discourage investment in Africa.

“The shift in perceptions is the lowest since we initiated our survey. However, it is important not to overstate this deterioration,” Ajen Sita, chief executive officer at EY Africa, said.

“Overall, a majority of respondents were positive about the progress made in Africa over the past year, and believe the continent’s attractiveness as a business destination will improve over the next three years.”
 

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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