Roller-coaster ride for investors in Africa
THE AFRICAN investment roller-coaster shows just how hard it has been to make bets on the continent pay off.
After two years of declines, the region experienced growth in inflows of foreign direct investment (FDI) last year, thanks to a revival of interest in South Africa and a more stable environment in Egypt. But foreign interest has been fickle, underscoring the difficulties for policy-makers to attract investors for the long haul.
New York-based Blackstone Group is scaling back in Africa after less than five years. Bob Diamond, the former Barclays chief, is turning his attention elsewhere after six years of struggle to get his banking venture off the ground.
“Over-sized bets, misunderstandings about the scale and nature of customer demand in sub-Saharan African markets and too-high expectations have led to mistakes,” said William Attwell, the head of sub-Saharan Africa research at DuckerFrontier in London, an adviser to multinational firms.
“The opportunistic approach is an inadequate approach.”
Africa and developing economies in Asia were the only regions to attract more FDI in 2018, according to UN Conference on Trade and Development (Unctad) estimates. With 54 countries spread over an area bigger than the US, China, India, parts of Europe and Japan combined, trends are never uniform. Nigeria, which vies with South Africa as the region’s biggest economy, has had FDI declines for three straight years, thanks to endemic corruption, unpredictable policies, lower oil prices, and deep-seated poverty.
Estimated inflows of $40 billion (R566bn) in 2018 are a fraction of the $1.19 trillion that moved globally, creating a gap for those willing to navigate challenges from regime changes and poor tax collection to foreign-exchange and skills shortages.
Washington-based Carlyle Group, which closed its $700 million sub-Saharan fund in 2014, is still doing deals on the continent even after being scorched by a Nigerian bank purchase, recently investing $40m in online travel agency Wakanow.com.
Paris-based Société Générale, which has operations in 19 African countries, has ambitions to double its share of revenue from the region to 10 percent. Egyptian billionaire Naguib Sawiris told Bloomberg TV on Tuesday that he is “very bullish” about Africa, particularly in consumer financing.
Renault is considering an assembly plant in Ghana, joining Volkswagen and China’s Sinotruk. The country last year overtook Nigeria, an economy six times its size, as the largest recipient of FDI in West Africa. Mercedes-Benz will invest €600m (R9.6bn) expanding its South African plant, while Dubaibased DP World is looking at the continent even after having its stake in a port in Djibouti nationalised.
Progress toward the implementation of a free-trade accord and a greater emphasis on boosting Africa’s manufacturing industry will lead to an acceleration in FDI, Unctad said. South Africa took the chunk of FDI to sub-Saharan Africa in 2018, grabbing about $7.1bn from $1.3bn in 2017.
Investments in Nigeria slid 36 percent to $2.2bn, although new oil and gas projects could lead to a recovery this year, Unctad said.
Although the outlook for Africa in 2019 is slightly more positive, driven by increases in consumer demand, government spending and investment, there are still risks if the global economy stalls, said Attwell.