Business a.m.

UNCTAD sees FDI rising marginally to Africa in 2021 but prospects uncertain

● FDI to Africa declined by 16% to $40bn in 2020 from COVID-19 negative impacts across the region ● Pandemic, low oil prices depressed Africa’s FDI flows; greenfield projects dropped by 62% to $29bn ● Cross-border M&As fell by 45% to $3.2bn

- Charles Abuede

THE UNITED NATIONS CONFER ENCE ON Trade and Developmen­t (UNCTAD) has projected that Africa will see a marginal rise in foreign direct investment (FDI). It also stated that the large falls in greenfield investment by 62 per cent to $29 billion and internatio­nal project finance announceme­nts, which also dipped 63 per cent to $46 billion in 2020, were signs of the significan­t downside risks in the immediate future.

The projection­s, contained in UNCTAD’s latest report accessed by Business A.M., also include that investment recovery in Africa is likely to lag behind the rest of the world given a projected GDP growth rate in 2021 of 3.8 percent that is lower than the projected global average and a slow vaccine roll-out programme.

Foreign direct investment (FDI) to Africa declined by 16 per cent in 2020, to $40 billion, as the COVID-19 pandemic continued to have a persistent and multifacet­ed negative impact on crossborde­r investment globally and regionally. The decline in Africa, higher than the decline in the developing-country average, came on top of an existing stagnant trend, with FDI on the continent remaining almost unchanged in 2019 compared to 2018.

Furthermor­e, the internatio­nal trade and developmen­t organisati­on reported that FDI outflows from Africa fell by two-thirds in 2020 to $1.6 billion, from $4.9 billion in 2019. The highest investment outflows were from Togo which stood at $931 million and was largely directed to other African countries. In the 2020 pandemic year, FDI inflows were significan­tly affected by the cascading health and economic challenges in Africa. As a result, the share of Africa in the FDI inflows of developing economies declined from 6.3 per cent to 5.9 per cent. Although most countries and regions within the continent were affected, foreign investment inflows were particular­ly impacted in resource-dependent economies.

Regional FDI inflows contracted below 2019 levels

An analysis of the total inflow within the African region, according to the 2021 report, shows that FDI inflows to North Africa contracted by 25 per cent to $10 billion, down from $14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, albeit with a significan­t reduction of 35 per cent to $5.9 billion in 2020. Flows to Morocco remained almost unchanged at $1.8 billion. Morocco’s FDI profile is relatively diversifie­d, with an establishe­d presence of some major MNEs in manufactur­ing industries, including automotive, aerospace, and textiles. FDI to Algeria dropped by 19 per cent to $1.1 billion, with inflows mainly directed to the natural resources sector. FDI to Sudan shrank by 13 per cent to $717 million. Inflows to Tunisia declined to $652 million from $845 million in 2019, a 23 per cent fall. The manufactur­ing sector attracted the most FDI (54 per cent), followed by energy (33 per cent). The biggest impact of the pandemic on investment was in the services sector, where FDI declined by 44 per cent, which left its share of total FDI flows in Tunisia at only 9 per cent in 2020.

In the sub-Saharan Africa region, FDI inflows decreased by 12 per cent to $30 billion, with investment growing in only a few countries. Within the West African space, inflows to Nigeria increased slightly, from $2.3 billion in 2019 to $2.4 billion. The average price of crude oil dropped by 33 per cent in 2020 and lower demand along with supply-side constraint­s caused by the slowdown in site developmen­t restricted FDI to the country in the first half of 2020. Senegal was among the few economies on the continent to have received higher inflows in 2020, with a 39 per cent increase to $1.5 billion, due to investment­s in energy, in both the traditiona­l oil and gas industry as well as renewables. Ghana registered a 52 per cent decline in FDI in 2020, leaving inflows at $1.9 billion, from $3.9 billion in 2019. Stringent lockdown measures in the first half of the year contribute­d to the investment decline, with the country among the first in the continent to impose mobility restrictio­ns. On the other hand, inflows increased in Mauritania by 10 per cent, to $1.0 billion, as a result of investment­s from China. FDI to Togo almost doubled to $639 million, mainly due to investment from other West African countries.

Elsewhere, the Central Africa region was the only region in Africa to register an increase in FDI in 2020, with inflows of $9.2 billion, as compared with $8.9 billion in 2019. Increasing inflows in the Republic of the Congo by 19 per cent to $4.0 billion helped prevent a decline. Investment in the country was buoyed by flows in offshore oil fields after the completion of Phase 2 licensing round of available oil blocks in 2019. FDI also grew in the Democratic Republic of Congo and Gabon by 11 per cent each, to $1.6 billion and $1.7 billion, respective­ly. In the Democratic Republic of Congo, inflows in mining supported FDI, as prices for cobalt increased with rising demand for its use in smartphone­s and electric car batteries. Similarly, Gabon registered robust inflows in the oil industry, as the adoption of its new Petroleum Code in 2019 led to several new offshore production-sharing agreements, some of which materializ­ed in 2020. Inflows were relatively stable in Chad, decreasing only 2 per cent to $558 million. FDI to the country remained overwhelmi­ngly concentrat­ed in natural resources.

Reporting from Eastern Africa, FDI in 2020 dropped to $6.5 billion, a 16 per cent decline from 2019. Ethiopia, despite registerin­g a 6 per cent reduction in inflows to $2.4 billion, accounted for more than one-third of foreign investment to the subregion. FDI to the United Republic of Tanzania was largely unchanged at $1.0 billion. FDI to Uganda decreased by 35 per cent to $823 million, compared with $1.3 billion in 2019, as work on the Lake Albert oil project slowed due to the pandemic as well as disagreeme­nts between the government and oil companies on the developmen­t strategy. FDI to Somalia increased marginally by 4 per cent to $464 million. The country launched a new investment promotion strategy in 2020 that outlined 10 priority areas for foreign investment, including livestock, fisheries, energy, and manufactur­ing.

FDI to Southern Africa decreased by 16 per cent to $4.3 billion, with Mozambique and South Africa accounting for most inflows. In Angola, repatriati­on of capital by MNEs in the oil and gas industry slowed, and the country registered net inflows of -$1.9 billion, as compared with -$4.1 billion in 2019. Inflows were steady in Mozambique, increasing by 6 per cent to $2.3 billion. The implementa­tion of the $20 billion investment led by Total (France) in the liquefied natural gas (LNG) project in the country slowed but continued, despite the pandemic and other challenges. FDI to South Africa, in contrast, decreased by 39 per cent to $3.1 billion. South Africa has borne high human and economic costs due to the pandemic, and the country’s GDP is estimated to have dropped by 8 per cent in 2020.

Possible 2022 return of FDI to pre-COVID levels

The UNCTAD report also disclosed that some indicators point to a potential return of FDI to preCOVID levels by 2022 despite the significan­t risks related to foreign investment in 2021. Although the overall value of planned project finance and greenfield investment­s fell considerab­ly, a few large deals announced in 2020 signal that foreign investors are engaged despite the unfavourab­le investment climate.

Furthermor­e, the United Nations body said the expected adoption of the Sustainabl­e Investment Protocol of AfCFTA could also bolster FDI flows to and within Africa in the long term. Finally, indication­s of an increase in commodity prices in 2021, especially for crude oil and natural gas, could also encourage investment flows to Africa; with oil prices projected to increase by 21 per cent on average and non-oil commodity prices by 13 per cent.

According to the report, FDI to Africa will face strong headwinds in the short term with significan­t downside risks. However, vaccine availabili­ty, domestic economic recovery policies, and internatio­nal financial support will be critical to the revival of FDI and the post-pandemic recovery on the continent, in the longer run.

 ??  ?? L- R: Alake of Egbaland, Oba Adedotun Gbadebo, Alake of Egbaland; Noimot Salako-Oyedele, deputy governor, Ogun State; Governor Dapo Abiodun of Ogun State; Jamiu Omoniyi Akande, commission­er for housing, Ogun State; and Tokunbo Talabi, secretary to the state government (SSG), during the commission­ing of Prince Court Estate, Kemta Idi-Aba, Abeokuta, recently
L- R: Alake of Egbaland, Oba Adedotun Gbadebo, Alake of Egbaland; Noimot Salako-Oyedele, deputy governor, Ogun State; Governor Dapo Abiodun of Ogun State; Jamiu Omoniyi Akande, commission­er for housing, Ogun State; and Tokunbo Talabi, secretary to the state government (SSG), during the commission­ing of Prince Court Estate, Kemta Idi-Aba, Abeokuta, recently
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