AFRICA’S glow as the new El Dorado of global investors has become somewhat dimmed by the impact of lower oil and commodity prices in the world market, and sluggish growth in several economies, says a new survey by Ernst & Young.
EY’s Africa attractiveness survey indicates the number of Foreign Direct Investment (FDI) projects in Africa fell 8.4% in 2014 compared to the previous year.
On the flip side, though, capital investment into the continent surged to $128 billion, up 136%. And FDI created 188,400 new African jobs as projects signed in the previous year became operational, a 68% increase.
Spurred by a handful of megadeals, the average investment increased to $174.5 million per project, from $67.8 million in 2013.
The upsurge was driven by large, capital-intensive energy extraction and real estate schemes, including a $16 billion plan by French oil conglomerate Total to develop the Kaombo offshore oil projects in Angola, which is expected to produce 230,000 barrels a day from reserves estimated at 650 million barrels.
Greek investors also announced a $10 billion deal to construct a new refinery and petrochemical plant in the Gulf of Suez in Egypt, and the Nigerian government signed a $5 billion deal with SkyPower FAS Energy to build a 3,000 megawatt solar project in Delta State, Nigeria.
The biggest drop in deal-signing was experienced by West Africa on account of its dependence on oil exports; FDI projects fell 23% in 2014 compared to the previous year. In East Africa, the number of projects dropped 12%, while southern Africa saw an 11% fall. But it’s not yet time to despair, the analysts say.
“Economic growth [in Africa] this year is likely to be at its lowest in five years,” said Ajen Sita, Chief Executive Officer at EY Africa in a statement.
“At the same time though, it remains resilient. Sub-Saharan Africa will still experience the second highest economic growth rate in the world this year, with 22 economies growing at a rate of 5% or higher.”
As investors’ feet got decidedly cooler, it’s good news at least in North Africa, where political uncertainty following the Arab Spring in 2011 is beginning to fade, and the region is becoming more attractive as an investment destination, attracting 22.2% more FDI projects than in 2013.
It won a higher share of African FDI projects, capital and jobs for the first time since 2007. Capital inflows were large: North Africa accounted for more than half of all African FDI inflows, against just 19.1% in 2013.
And the number of jobs created, in a region where they are sorely needed, more than trebled to almost 80,000, with North Africa’s share of jobs created doubling to more than 42% of the total.
Egypt attracted 71 projects, an increase of 61.4% on 2013. That helped secure inflows of $58 billion that created 51,634 jobs, making Egypt Africa’s champion for both investment and job creation.
Morocco also recorded robust investment, as it positions itself as a gateway to the African continent, particularly for investors from the US and Europe.
However, this year’s survey indicates that investor perceptions of the rest of Africa reached the lowest level since 2011.
When asked about Africa’s attractiveness over the past year, only 53% of the respondents said it had improved, down from 60% in 2014. There was also a slight drop in confidence about the continent’s future investment attractiveness.
As Africa’s perceived attractiveness declined, it ceased to be seen as the world’s second-most attractive region as was the case in the EY’s previous attractiveness survey (after North America and joint-second place with Asia) and fell to fourth place.
Political risk factors, such as instability and corruption, remain the main barriers that discourage investment in Africa.
Sita says: “The shift in perceptions is the lowest since we initiated our survey. However, it is important not to overstate this deterioration. Overall, a majority of respondents were positive about the progress made in Africa over the past year, and believe the continent’s attractiveness as a business destination will improve over the next three years.”
Still, Africa can be consoled by the fact that the rest of the world was having it rough too. In Europe, geopolitical tensions over Ukraine had the number of green field projects drop 21%, the biggest fall of any region globally.
In the Middle East, the number of projects fell 17% over the turmoil in Iraq and Syria precipitated by the rise of the Islamic State.
US companies have traditionally been the largest group of foreign investors in Africa.
Last year, US investors launched 101 projects, accounting for nearly 30% of all FDI deals in Africa; in August 2014, leading American companies including Coca-Cola, Blackstone Group and Carlyle Group announced more than $14 billion investments in Africa at the first US-Africa Leaders’ Summit.
After the US, South African companies were the continent’s second-biggest investor group, launching 53 projects across Africa in 2014 – although the recent space of xenophobic attacks against African immigrants in South Africa have tarnished the country’s image in Africa, which it is now keen to repair.
Still, despite their “heavy-weight” perception, South African investors have tended to launch relatively small projects, in terms of capital invested and jobs created – although they provided 7.2% of projects during the year, they invested only 4% of the continent’s FDI capital inflow and provided relatively few jobs.
Two trends defining Africa’s future growth path are rising urbanisation and a growing consumer class. In line with these trends, FDI data reveals strong inflows into real estate, hospitality and construction in 2014.
Three consumer-facing sectors — technology, media and telecommunications; financial services; and consumer products and retail again attracted the largest share of investor activity, with investors also excited about prospects in the relatively underexploited agricultural sector.
FRENCH VERSION
