Africa punches below its FDI weight

FDI flow chat

BY AGENCIES

AFRICA punches below its weight in attracting foreign direct investment and SA companies and government could improve their cooperation in doing business with the rest of the continent, says Michael Lalor, director of Ernst & Young's Africa Business Center.

At press briefing on Thursday Lalor said that Africa, which was now one of the top three growth areas in the world, was still only attracting less than 5% of the world's FDI flows.

This, he said, was because negative perceptions of the continent still persisted even though the reality on the ground was vastly different.

According to a study done by Oxford Economics on behalf of the global auditing and consulting firm, four of the world's 25 Rapid Growth Markets (RGMs) were located in Africa. These were Nigeria, SA, Ghana, and Egypt.

Other countries in this RGM group included Russia, China, Kazakhstan, Chile, Brazil, Argentina, Indonesia, Malaysia Turkey and Poland.

The three main criteria to be included in the RGM is that a country had be large in terms of GDP and demographics, that it had a dynamic and rapidly growing economy and that it had strategic importance for business development.

According to the research RGMs would make up 50% of world GDP, 38% of global consumer spending and 60% of the world's population.

Lalor said that sub-Saharan Africa was the second fastest growing region after emerging markets in Asia at just over 5% growth per year, while the Middle East and North Africa was just more than 4% and Latin America just above 3%.

Seven of the 10 fastest growing economies were within the 25 RGM countries with Ghana topping the list with a growth rate of more than 8%, which was higher than second on the list China with a rate of 7.8% and Nigeria took third place with 7.2%.

But, according to the research, Africa's share of FDI was not growing with it having just received 4.5% of global flows in 2010 compared with 4.9% in 2009 and 5.2% 2008.

The top FDI destinations in Africa were Nigeria with US$108 billion, Egypt with US$107 billion and Algeria with US$68 billion.

Oxford Economics research shows that at the height of FDI flows into Africa in 2007/08 more than 250,000 direct jobs were created on the continent.

He said the negative perceptions about Africa run contrary to studies. For instance, many investors believed that doing business in Africa was more challenging than in other rapidly growing markets. However, the World Bank's most recent Ease of Doing Business rankings placed 14 African countries ahead of Russia, 16 ahead of Brazil and 17 ahead of India.