East Africa emerges as the leading destination for FDI on the continent

Nov 19, 2018

East Africa registered a growth in foreign direct investment growth last year, performing stronger than other regions across the continent, attracting 30 per cent of the continents total FDI with 197 projects.

According to EY Global’s 2018 Africa Attractiveness report, the region recorded a 82 per cent increase in the number of FDI projects last year compared with 2016.

“This shifting investment landscape is a function of numerous factors, including multi-speed growth, investment friendly economic policies and, to some extent, regional integration initiatives, particularly in the east of the continent where the East African Community made up of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda has been successful in increasing economic growth since its formation,” reads the report.

Kenya, the region’s leading economy, reported a 68 per cent increase in inward investment projects last year, despite political uncertainty in the second half of the year following a prolonged election cycle.

British investors were particularly active, with 10 project commitments, followed by Dutch companies.

“Kenya’s fast-growing technology sector, nicknamed ‘Silicon Savannah,’ continued to draw foreign investor interest. technology media and telecommunications (TMT) FDI projects in Kenya increased by 44 per cent compared with 2016, largely because of a conducive environment, including a pool of well-resourced IT developers and a high smartphone penetration rate.

“In addition, the Kenyan government has been active in making the country a viable and competitive technology hub, formulating policies to drive this initiative,” reads the report.

FDI projects

Ethiopia, which was Africa’s second-fastest growing economy in 2017 saw its consumer products and retail (primarily textiles), real estate, hospitality and construction sectors collectively responsible the surge in FDI to the country last year.

“Looking ahead, the recent opening up of the telecoms, shipping, power generation and aviation sectors to foreign investment will prove to be a further boost to investor interest,” the reports said.

Tanzania also posted a sharp rise in FDI projects, attracting nine projects, mostly in infrastructure, as well as private investment in the development of a regional hydrocarbons sector.

Major oil discoveries also put Uganda on the investment map, with the country attracting 14 FDI projects in 2017, up from nine in the previous year,” the report says.

Rwanda, which ranks as one of Africa’s most business-friendly destinations, received 1.5 FDI projects for every $1 billion of GDP.

Measured by the same criteron, South Africa receives only 0.32 projects, attracting only 20 per cent of what Rwanda does, given its relative size.

“This is because Rwanda has pursued a long-term economic reform agenda over the years and hence, continues to outperform other countries in attracting foreign direct investment,” EY says.

Growth

Last year also saw foreign investors commit to 718 FDI projects in Africa, a six per cent increase from 2016, which was in line with expectations that FDI would rise in tandem with higher growth, given the continent’s economic recovery during the year.

“The increase in FDI was aided by a continuing shift from extractive to sustainable investment. In addition, investors in Africa often take a long-term view to investment. They recognise that low growth rates are not permanent. Moreover, given the more positive growth outlook until 2020, investors are willing to invest more,” the report said.

Another factor that may have played a role in boosting FDI numbers last year was that companies sought to benefit from the sluggish growth environment by investing while currencies were weak against the dollar.

EY also said that the US remains Africa’s largest investor, reporting an expansion in FDI projects after two consecutive years of decline.

Last year, US companies launched 130 projects, against 91 in 2016, driven by an increase in real estate, hospitality and construction sectors.

Agoa

In the past, US economic ties with Africa were driven by the Africa Growth and Opportunity Act (Agoa) — granting 40 African countries duty-free access to the US for approximately 6,400 products — and programmes such as Power Africa.

While the focus on Africa under the US President Donald Trump seems less of a priority, the US corporate sector, nevertheless, continues to express a keen interest in building a presence across the continent.

The continent also recorded a 12 per cent drop in intra-African investment, from 105 FDI projects in 2016 to 92, even though South Africa, the largest intra-African investor, held investments steady at 29 projects.

Morocco’s FDI projects fell to only 3 from 17 in 2016, while Kenya also saw a drop on its investments in the continent.

“The outlook for intra-regional co-operation looks bright as the adoption of the African Continental Free Trade Area is expected to provide the required impetus to intra-regional trade, investment and integration. AfCFTA aims to create a single continental market for goods and services across Africa,” reads the report.

 

Credit: The East African

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