Investment in Africa on the Up

ERNST & Young’s 2013 Africa Attractiveness survey showed that Africa’s share of global foreign direct investment（FDI） has risen from 3.2 percent five years ago to 5.6 percent. FDI flowing from emerging markets into Africa outpaced that from developed markets in 2012. These investments strongly promote the development of Africa’s GDP， skills， poverty reduction and equality， and China contributes a huge share of them. The Kenyan media have praised Chinese investment and trade as an historic opportunity for Africa.

Africa’s Increasing Share of Global FDI

The 2013 Africa Attractiveness survey combines an analysis of international investment in Africa with a 2013 survey of over 500 global business leaders from 38 countries about their views on the potential of the African market. The report indicates that FDI increased by 12.8 percent over the past five years. Eightysix percent of these leaders believe that Africa’s business environment will continue to improve in the next three years， ranking Africa as the second most attractive region for investment in the world after Asia.

Ongoing improvements in business environment and exponential growth in trade and investment provide a platform for Africa’s economic growth. The report points out that the size of the subSaharan African economy has more than quadrupled since 2000. “There is no doubt ... the African growth story is real and that the potential over the next 10 to 20 years is even bigger，” said Ajen Sita， Ernst and Young’s Managing Partner for Africa.

According to this report， FDI projects have been shifting their emphasis from natural resources to services， manufacturing and infrastructure during the past half decade. Services accounted for 70 percent of projects in 2012 while infrastructure-related activities made up 73.5 percent of FDI. During that time， nearly US $12 billion of private equity funds flowed into Africa.

The report indicates that infrastructure gaps， particularly relating to logistics and electricity， are consistently cited as the biggest challenges by those doing business in Africa. However， the infrastructure deficit is now being bridged. In 2012 there were over 800 active infrastructure projects across different sectors in Africa with a combined value in excess of US $700 billion.

BRICS Major Investors in Africa

The report says that since 2007， this category of investment from emerging markets into Africa has grown at a healthy compound rate of 20.7 percent， in comparison with investment from developed markets， which has grown at only 8.4 percent. Last year FDI from emerging markets into Africa outpaced that from developed markets. That year greenfield investments on the African continent from emerging markets such as China and the United Arab Emirates rose sharply， and investment from China grew 28 percent.

Investment in FDI projects from developed markets fell by 20 percent in 2012. The United States， Britain and France have been the three biggest investors in Africa over the past decade， but only Britain increased its investment in 2012. Investment from the United States and France in Africa decreased by 22 percent and 39 percent respectively.

The Overseas Development Institute， the UK’s leading independent thinktank， released a report in March indicating that FDI volume in Africa increased from US $15 billion in 2001 to US $37 billion in 2011， and investment from BRICS accounted for 25 percent in 2010.

Global Investment Trends Monitor， issued by the UN Conference on Trade and Development （UNCTAD） in March， said that BRICS countries have joined the ranks of top countries in Africa in terms of inward FDI stock and their share of inflows.

Although Africa accounts for only four percent of BRICS FDI outflows， the share of BRICS countries in Africa’s total value of greenfield projects rose from 19 percent in 2003 to 25 percent in 2012. Most BRICS FDI projects in Africa are in manufacturing and services. Only 26 percent of the value of projects is in the primary sector.

An official of the Standard Chartered Bank in charge of African financial affairs says that FDI from emerging markets into Africa， especially from China， is becoming Africa’s main source of funds. This is very important for the diversification of sources. Furthermore， investments vigorously promote employment and technology transfer in Africa.

China Fills Africa’s Funding Gap

The 2013 Africa Attractiveness survey indicates that FDI has played a crucial role in supporting Africa’s rapid economic development in the past decade， creating at least 15 million jobs and promoting training， poverty reduction and equality. The role that Chinese investment has played in this is indisputable.

The report shows that the number of new FDI projects from China has reached 152 in the last five years， ranking ninth in the world. FDI projects from China increased 28 percent in 2012. The CEO of Standard Chartered Bank in Africa says that South-South trade and investment grew rapidly over the past decade， with the China-Africa trade volume hitting nearly US $200 billion in 2012.

Liu Yagan， general manager of the Industrial and Commercial Bank of China’s（ICBC） African office， said that ICBC invested US $5.5 billion in a 20 percent share of Standard Bank in 2008 –the biggest foreign investment in Africa so far. Liu Yagan indicated that investment from China in Africa now stands at US $2-3 billion annually， inward stock having exceeded US $15 billion by 2012.

Anand Ramachandran， senior researcher at the American think tank the Center for Global Development （CGD）， said that China played an important role in narrowing the funding gap in Africa. The Standard of Kenya reports that Chinese investment and trade offer a historic opportunity for Africa’s independent development.

A local supervisor of the Huajian Shoe Factory production line， located in Ethiopia’s Eastern Industrial Park， says that he is proud of working for a Chinese company. Thanks to this employment he can afford to pay his brothers and sisters’ tuition fees and share the family burden. Meanwhile， he has acquired a chance of further study.

Siphamandla Zondi， honorary professor of the Department of Political Science in the University of South Africa and director of the Institute for Global Dialogue （IGD）， said that Chinese President Xi Jinping announced at the end of March that China would provide US $20 billion loans to Africa over the next three years.

According to Zondi， President Xi Jinping visited three African countries in late March， signed 40 cooperation documents including projects beneficial to Africa’s economy and people’s livelihood and announced a series of measures to support African construction. These included increasing aid to Africa， cooperation in investment and financing， and professional talent development training， all of which will be a catalyst for Africa’s further development.