Foreign direct investment (FDI) into South Africa recovered to $8.2-billion in 2013, from $4.6-billion in 2012, notwithstanding ongoing anxiety about the state of the South African economy and its attractiveness as an investment destination.

In addition, a new international report shows that outward FDI by South African companies, much of it into the rest of the continent, also almost doubled to $5.6-billion, powered by investments in telecommunications, mining and retail.

The United Nations Conference on Trade and Development’s (Unctad’s) World Investment Report 2014 (WIR2014) says the strong South African inflows, together with record inflows of $5.9-billion to Mozambique, stimulated a near doubling in Southern African FDI during 2013, compared with the prior year.

The Industrial Development Corporation’s Jorge Maia, who released the report on behalf of Unctad in South Africa last week, reports that the Southern African region experienced investment inflows of $13.2-billion, up from $6.7-billion in 2012, which helped raise overall African inflows by 4% to $57-billion.

The rise in the South African figure, which is notoriously volatile and has been heavily influenced in the past by a single large transaction, is likely to be closely scrutinised.

The figure represents a sharp turnaround from the postrecession low of $3.6-billion recorded in 2010 and is only modestly below the record of $9.2-billion achieved in 2008. It also makes South Africa the leading recipient of FDI for the period, having ranked third in 2012, behind Nigeria and Mozambique.

Maia says it is not entirely clear what drove the recovery in South Africa, but indicates that there were some large transactions in the banking, telecommunications, energy and automotive sectors last year that probably all contributed.

Questions will also no doubt be raised about the sustainability of the recovery, particularly given the fact that investor perceptions have been marred by the protracted strike in the platinum sector.

International Investment Initiative director at the University of Bern’s World Trade Institute Dr Stephen Gelb says the improvement in 2013 inflows “is not too surprising” given that the South African Reserve Bank’s (SARB’s) numbers, from which Unctad derives its figures, showed that inflows for the first half of last year were already $3.3-billion.

“However, if one looks at the number of firms investing in South Africa, rather than the number of US dollars flowing in, my research has shown over 130 foreign firms either entered South Africa or expanded their investments during 2013 – that is about 2.5 foreign firms per week announced an investment in South Africa,” Gelb elaborates.

He says it also appears that South Africa’s decision to terminate bilateral investment treaties (BITs) with 12 European countries, did not overly affect the decisions of firms to invest. “We’ll have to wait and see if 2014 reflects any change . . . these decisions take some time to make, so the data doesn’t react immediately to events.”

South Africa’s Trade and Industry Minister, Dr Rob Davies, has defended the country’s decision to terminate the BITs in favour of “comprehensive” investment legislation. He has also insisted that there is no intention to weaken investment protection, but rather to modernise such protection and make it more inclusive. However, South Africa’s stance has also been heavily criticised by some European Union governments, with European Commissioner for Trade Karel De Gucht having been especially scathing in his criticism, describing the move as “bad policy”.

Maia says the SARB figures show positive direct-investment flows for all four quarters of 2013, with a peak of R47.4-billion in the third quarter of last year. Overall direct-investment flows rose to R79.1-billion for the year as a whole, which was larger than the R71-billion in port- folio investments during the year.

The figures are likely to have been influenced by the Barclays-Absa transaction relating to the bank’s reorganisation of its African portfolio, as well as the injection into Cell C by Oger Telecom and Marriott International’s acquisition of Protea Hospitality Group.

Outside Southern Africa, East African FDI also rose strongly (15%) to $6.2-billion, but persistent political and social tensions continued to subdue flows to North and Central Africa, while lower levels of investment into Africa’s largest economy, Nigeria, were attributed mainly to the retreat of foreign transnational corporations from the country’s oil industry. Investment flows to West Africa declined by 14%, to $14.2-billion, with inflows to Nigeria falling from $7.1-billion in 2012 to $5.6.

Global FDI, which declined in 2012, returned to growth, with flows rising 9% to $1.45-trillion, from $1.33-trillion.

Unctad forecasts that FDI flows could rise to $1.6-trillion this year, $1.7-trillion in 2015 and $1.8-trillion in 2016, with relatively larger increases in developed countries. But developing economies maintained their leadership position last year, with FDI reaching a new high of $778-billion, or 54% of the global total.

In both South Africa and Mozambique, infra- structure provided the main attraction to foreign investors in 2013, with investments into Mozambique’s gas sector also playing an important role.

The WIR2014 also shows that intraregional investments are increasing, led by South African, Kenyan and Nigerian corporations. “Most of the outflows were directed to other countries in the continent, paving the way for investment-driven regional integration.”

Consumer-orientated sectors are also beginning to drive investment growth across the continent, underpinned by expectations for further sustained economic and population growth. The African middle class is already estimated to have expanded 30% over the past decade to 120-million people.

“Reflecting this change, FDI is starting to diversify into consumer-market-orientated industries, including consumer products such as foods, information technology, tourism, finance and retail,” Unctad says, adding that information on greenfield investments shows that the services sector is driving inflows.

Data on cross-border merger and acquisition activity, meanwhile, shows a sharp increase in the manufacturing sector, targeting the food processing industry, construction materials and pharmaceuticals industries.

Outward FDI flows from Africa rose marginally to $12-billion, with companies from South Africa, Angola and Nigeria directing most of that investment to neighbouring countries.

“In addition to well-known South African investors (such as Bidvest, AngloGold Ashanti, MTN, Shoprite, Pick n Pay, Aspen Pharmacare and Naspers), some other countries’ conglome- rates are upgrading their cross-border operations first in neighbouring countries and then across the whole continent,” Unctad says, making specific reference to Sonatrach, of Algeria, the Dangote and Simba groups, of Nigeria, Orascom of Egypt, and the Sameer and Comcraft groups, of Kenya.

Compared with other foreign investment, Unctad notes, intra-African projects are concentrated in manufacturing and services, with the extractive industries playing a marginal role. In fact, it says that 97% of intra-African investments target nonprimary sectors, compared with 76% of investments from the rest of the world, with a particularly high difference in the share that targets the manufacturing sector.

The scale of intraregional investment has also increased, with the report noting that, between 2009 and 2013, the share of cross-border greenfield investment originating from other African countries has increased to 18%, from about 10% in the period from 2003 to 2008. “All major investors – South Africa (7%), Kenya (3%) and Nigeria (2%) – more than doubled their shares.”

Over the same five years, the gross value of cross-border intra-African acquisitions grew from less than 3% of total investments in the period 2003 to 2008 to more than 9% in the subsequent five years.