How Africa can double its share of global foreign direct investment in 24 months

Foreign direct investment (FDI) flows to Africa were severely impacted by Covid-19 and have still not bounced back. The outgoing CEO of the Ecobank Group, Ade Ayeyemi, addresses the question of how they can be restored

Flows of foreign direct investment (FDI) were severely impacted by Covid-19. In 2020, FDI flows to Africa fell by 16% to $40 billion – a level last seen 15 years ago, while greenfield project announcements, which are key to industrialisation prospects, fell by 62%. How can Africa increase its FDI from 5% of the global FDI to 10%, and what should be our focus over the next 24 months to achieve this objective?

• FDI is about business, security of investment and returns, capital flows, and a stiff, but healthy, competition for a finite pool of capital. It will require intentionality, a visible well-articulated strategy and disciplined execution to achieve the stated goal. It is important to recall that capital is shy, wary of noise, and detests uncertainty. Furthermore, I would not advise that we anchor our objective on a continental plan given the lack of homogeneity. However, just as one transaction in South Africa significantly boosted the numbers for Africa, the more we achieve our national or regional programs, the more we will boost the total inflows to Africa, • Eliminating dependency risks in Agriculture, Health and Education. We are in interesting times, where the economic green shoots visible last December-January from the slow but sure recovery from COVID, have been nearly wiped out by the triple crisis of inflation, food and fuel – some of which can be attributed to the Russia-Ukraine war. The key lesson that should spur us to action is the need to build value chains around essential sectors such as agro-industry, health and education. • Seizing opportunities and courting

new trading partners. The loss of lives

and property resulting from the RussiaUkraine war is tragic, and deeply distressing, particularly in 2022. However, African countries also need to recognize the opportunities it presents, particularly to make new trading friends/partners beyond the usual historical relationships. The global fuel crisis from the war creates an opportunity for African oil and gas producing countries to expand and upgrade their operations and meet the demands of new and current trading partners. • Being guided by the changing winds.

There has been significant diversification of FDI targeted sectors over the years. While resource extraction, petroleum and coal processing accounted for over 50% of the US$236 billion greenfield FDI projects in Africa by 2010, between 2016 and 2020, these sectors accounted for less than 25% of FDI inflows. FDI investments in logistics, communications, IT services, chemicals and renewable energies increased from 20% of utilities investments to over 50% over the same period. Governments need to give attention to these shifts and provide incentives to attract investments in the identified new areas of interest, as well as partner with private sector to ensure preparation of investable opportunities.

• Renewable Energy. With increasing institutional investor focus on environmental and climate-related considerations, renewable energy has been an attractive sector for FDI. While FDI declined in other sectors during the pandemic, there was a marked increase in international project finance renewable energy deals, with FDI flows exceeding pre-pandemic levels. Africa must hasten the leveraging of its almost unlimited potential of solar capacity (10 TW), abundant hydro (350 GW), wind (110 GW), and geothermal energy sources (15 GW).

• Green Energy Metals. Africa’s vast deposits of green energy metals – cobalt, copper, lithium, platinum, nickel and manganese, to name only a few, - are a strategic advantage for the transition to clean energy. Having the resources is however not just enough, the countries must ensure appropriate policies, including for beneficiation, technology and knowledge transfer, appropriate pricing, favorable legal documentation, incentives, and a balanced tax structure. Learning from the lessons of other countries such as Indonesia, which banned the export of unprocessed metals, including nickel, African countries should consider adopting similar policies.

• Resource beneficiation. Creating value around our vast mineral and agricultural commodities is imperative; the alternative is to remain exporters of raw commodities – and the bulk of the profit – forever at the mercy of global markets and fluctuating prices. It is essential that we capture the value within Africa. Well-resourced continental banks with big-project investment footprints are keen to provide development finance for resource beneficiation, strengthening the value proposition for foreign investors to partner in ecosystem ventures that create jobs and value within the continent.

• Africa’s Blue Economy provides opportunities for FDI, with a coastline of 30,500 kilometers and an exclusive economic zone of 13 million square kilometers. It is however, under-regulated and over

“I am certain that Africa can win, in no small part due to the entrepreneurial spirit of our rapidly growing population and the energizing effects of the transformational African Continental Free Trade Area”

extracted. Valued conservatively at $24 billion, it has the potential to be a major revenue stream for the 38 African countries with coastlines. • The African Continental Free Trade

Area (AfCFTA) provides a huge opportunity for FDI to unlock benefits to be derived from regional manufacturing facilities, industrial parks, logistics companies, and various intra-African businesses. In addition, payment companies will be critical to the success of the AfCFTA, in addition to the PAPSS created by the Afreximbank. We, however, have to better articulate the opportunities resulting from the AfCFTA, and accelerate the completion of a continental customs union.

• The New Economy. 2021 has been described as a record year for investments in African Fintechs with over US$1.6bn across 153 transactions. This was twice the value in 2020 and a 50% increase in the number of transactions. Fintechs should be supported and countries should avoid over regulation. • FDI into African infrastructure investments provide a diversified asset class with attractive returns, often as a stable income and an inflationhedge. The opportunities are widespread across power, renewables, telecoms, digital, roads, ports, railways, aviation, natural resources, industrial parks and

Special Economic Zones, healthcare, water and sanitation, urbanisation and more.

Having outlined different areas of opportunities, it is important to highlight certain actions that

African countries would need to take to attract investments.

FDI will not naturally find its way to African countries. It needs to be deliberately courted, and in this connection, countries must have a policy framework for FDI, including privatization, tax, and investment policies, and clearly provide a framework for investment/business facilitation, including incentives.

Rwanda is a great example of a country purposefully courting FDI. We must ensure an enabling legal environment, and appropriate labor laws. Initial investments also must be made to ensure investment readiness.

Furthermore, countries should invest in Investment Promotion Agencies (IPAs) that, as noted by the World Bank, are structured for maximum impact through

(i) sharpened strategic focus, (ii) coherent private sector modeled institutional framework, and (iii) delivery of effective investor services across the investment cycle. In addition, these IPAs must ensure easy access to critical information and assistance, provide visibility of available opportunities and facilitate closing of transactions. In this regard, the IPAs should provide a dealroom for potential investors.

Governments must also be prepared to encourage public private partnerships and hold their end of the bargain. Communication of investment readiness and a targeted investor outreach is also necessary. Furthermore, fora such as the African Investment Forum, is also important in this regard.

Africans must show leadership in investing in their countries and show that they have skin in the game. In this connection, the African diaspora has a vital role as the principal source of remittances into and across Africa, and, in several countries, account for the single-largest source of foreign currency.

African corporates also have a key role, as they mobilize funding for investments, provide leadership and create investment opportunities. Africa’s large corporates need to capitalize on their access to the global capital markets, including as an impactful means of mobilizing FDI.

Over the next 24 months, I would advise that as part of their economic recovery plans, countries work with professionals and the private sector on (i) their FDI mobilization strategies, including an effective communication strategy, (ii) evaluate their current situation, their policies, incentives, and enhance as necessary; (iii) identify opportunities, and ensure that such opportunities are made investment ready; (iv) ensure that there is an effective IPA, and (v) organize an investment promotion forum, at the latest in 18 months either as a national or regional forum through their regional economic communities.

The Ecobank Group would be willing to support countries of operations as they embark on this journey.

This is an evolving journey rather than a sprint, but it is a journey worth taking without delay, and that I am certain that Africa can win, in no small part due to the entrepreneurial spirit of our rapidly growing population and the energizing effects of the transformational African Continental Free Trade Area. ■