South Africa remained the top African destination for foreign direct investment (FDI), Michael Lalor, the lead partner at the Ernst & Young (E&Y) Africa Business Centre said.
South Africa gained 154 new projects last year, out of a total of 764 for Africa, he said.
Lalor was presenting the E&Y annual Africa attractiveness survey in Johannesburg yesterday, which showed FDI into Africa is dominated by a small number of countries. South Africa, Egypt and Morocco accounted for 37 percent of new projects since 2003.
But South Africa is facing increasing competition from other countries in the region. Ghana achieved the strongest growth in FDI projects between 2007 and last year, more that 50 percent, while South Africa’s inward FDI grew only 22.4 percent. However, this was off a much higher base. South Africa ranked 11th in terms of growth, just behind Nigeria, which achieved 23.4 percent.
Lalor said FDI into Africa fell 12 percent last year as the global economy slowed. This was due to disappointing investment from developed economies. “Although FDI projects from the UK grew, those from the US and France, the other two leading developed market investors in Africa, were considerably down.”
However, Africa proved relatively resilient: global FDI declined about 15 percent. And Africa’s share of total FDI rose to 5.6 percent from 5.4 percent in 2011 and 3.2 percent in 2007.
Lalor said South Africa was the single-largest investor in FDI projects in Africa outside of South Africa, last year. The economies of the continent are becoming increasingly diversified. Lalor added that 70 percent of FDI projects last year went into the service sectors, and 73.5 percent of the capital investment into greenfield projects related to manufacturing and infrastructure.
Between 2003 and last year, FDI flowed into 958 projects in the financial services sector, 461 into coal, oil and natural gas and 419 into metals.
Less than one-third of Africa’s growth over the past five years has come from natural resources, FDI projects related to extractive industries represented only 2 percent of FDI projects and 12 percent of capital last year, compared with 8 percent and 26 percent respectively in 2007.
But the E&Y survey of more than 500 business leaders and investors from 38 countries showed the highest number of respondents still believed that mining and metals had the highest growth potential in Africa. However, the number who believed this was the case had fallen to 26 percent this year from 38 percent last year and 44 percent in 2011.
The latest survey confirmed a large gap between the perceptions of investors already established in Africa and those with no business presence in the region. The former perceived the environment far more positively and were more optimistic about the future than those outside.
Ernst & Young Africa chief executive Ajen Sita said the government should focus on making it easier for companies already established in Africa to invest and do business across the continent.
Based on survey responses, this would entail addressing corruption and improving transport and logistics infrastructure.