According to the latest World Investment Report published by the UN, total global foreign direct investment (FDI) inflows fell by 16 percent to $1.23 trillion (R16.38 trillion) in 2014.
Despite the global decline, Africa managed to hold FDI inflows constant at $54 billion and its share of global FDI increased from 3.7 percent to 4.4 percent.
Flows to sub-Saharan Africa increased by 5 percent to $42bn, mostly buoyed by a 33 percent increase in flows to Central Africa.
FDI in East Africa also showed a positive change, growing 11 percent, but flows to west Africa and southern Africa declined by 10 percent and 2 percent, respectively.
South Africa remained the most popular country in Africa for FDI, attracting $5.7bn in inflows. While this put South Africa slightly ahead of Congo, Mozambique, Egypt and Nigeria it represented a 31.2 percent decline in its FDI compared with 2013.
In terms of African FDI outflows, South Africa was by far the largest contributor, investing $6.9bn outside of its borders – a 4.3 percent increase compared with 2013. Much of this investment was destined for other African economies.
South African multinational corporations invested primarily in telecoms, mining and retail.
Interesting results
Nedbank agreed to purchase a 20 percent stake in Togo’s Ecobank for $500 000. Shoprite now owns 195 stores in other African countries – 18 new stores were opened in 2014 and a further 14 were opened in the first half of 2015.
MTN established data centres, sales offices and 4G projects in the Ivory Coast, Ghana, Swaziland and Uganda.
One of the most interesting results from the study shows how the structure of investment in Africa is changing – 48 percent of FDI inflows in Africa went to the services sector, 31 percent to primary sectors and 21 percent to manufacturing.
This indicates a maturing of African economies and a movement away from the dependence on extractive industries and exports.
The shift away from FDI in extractive industries and towards consumer and service related sectors in Africa will have positive externalities on the robustness and diversity of economic growth.
Value creation
In primary industries, value is added once the raw material has left the exporting nation, but a shift towards services indicates that value creation will, to a greater extent, remain within the domestic economy. This will require greater investments into skills development and the need for more efficient financial and legal institutions.
Wealth will be more evenly distributed and governments will lose their hegemonic control over private sector revenues (as is the case in Africa’s largest oil producers). Consumer markets will show higher levels of choice and increasing diversity of tastes leading to the development of niche markets.
As this trend continues and internal markets develop, African economies will become less vulnerable to international commodity prices, their exchange rates will stabilise and they will gain more control over their monetary policy.
Consumer markets (especially food and beverages) will grow, non-traditional investors – such as private equity – will continue to play a greater role, and intra-African FDI will continue to rise. African governments are also showing greater interest in using public-private partnerships to supply public services such as electricity, gas and water.
It is important for South Africa to retain its trade links with the US and Europe and develop those it has with the East. But the African market is one of the greatest opportunities available to South Africa in terms of boosting its own growth.
The regional proximity and cultural familiarity gives South African companies a competitive advantage over non-African investors. African economies also offer the potential for more beneficial trade agreements than those dictated by the developed economies.
* Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein
BUSINESS REPORT