In­vest­ment back­wa­ter

Finweek English Edition - - Economic Trends & Analysis - HOWARD PREECE howardp@fin­week.co.za

FOR­EIGN DI­RECT IN­VEST­MENT (FDI) in Africa dou­bled to US$39bn be­tween 2004 and 2006. The to­tal was broadly sim­i­lar last year, at $36bn. That ob­vi­ously looks most en­cour­ag­ing for this con­ti­nent, or at least for those coun­tries that have been the main ben­e­fi­cia­ries.

How­ever, a detailed re­port by Jeremy Stevens for the eco­nomic re­search depart­ment at Stan­dard Bank shows that, un­for­tu­nately, Africa gen­er­ally has far less to cheer about than those fig­ures ini­tially sug­gest. Stevens writes: “De­spite the in­crease in ab­so­lute terms, Africa’s share of global FDI de­clined from 3,1% in 2006 to 2,7% in 2007.” He con­tin­ues: “The en­tire sub-Sa­ha­ran Africa (SSA) re­gion at­tracted less FDI than Mex­ico, half of Canada’s and a mere one-fifth of China’s. Some fur­ther mod­er­a­tion is pos- sible due to likely de­cel­er­a­tion in large in­flows into oil in­dus­tries over the next few years.”

Stevens adds: “FDI re­mains con­cen­trated in a few coun­tries. The top 10 FDI re­cip­i­ents in Africa ac­counted for nearly 90% of the con­ti­nent’s in­flows in 2006.” He urges: “Growth strate­gies cen­tred on com­mod­ity ex­ports are some­what un­sus­tain­able.

“African economies are vul­ner­a­ble to whip­saw­ing terms of trade, cur­rency fluc­tu­a­tions and nu­mer­ous other fac­tors. This dis­cour­ages much-needed longert­erm in­vest­ment flows.” He ob­serves: “The ev­i­dence in­di­cates a clear pos­i­tive link be­tween eco­nomic di­ver­si­fi­ca­tion and ex­port sus­tain­abil­ity.”

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