SA at forefront of intra-Africa investment

6th May 2013

By: Idéle Esterhuizen

  

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South Africa has been at the forefront of growth in intra-African trade and broader emerging market investment during 2012, with intra-African investment showing a 33% compound growth rate, advisory firm Ernst & Young’s latest Africa Attractiveness Survey has shown.

The report combined an analysis of international investment into Africa over the past five years with a 2013 survey of over 500 global business leaders about their views on the potential of the African market.

Launched in Johannesburg on Monday, the report stated that South Africa had been the single largest investor in foreign direct investments (FDI) projects in the rest of Africa in 2012.

Although Kenya and Nigeria had also invested heavily in the continent, other countries such as Angola, which has a $5-billion sovereign wealth fund, were expected to become increasingly prominent investors across Africa over the next few years.

Further, investments from emerging markets into Africa grew again in 2012, continuing the trend over the past three years, while investment in FDI projects from developed markets fell by 20%.

From 2007, the rate of FDI projects from emerging markets into Africa had grown at a healthy compound rate of over 21%, while investment from developed markets had grown at 8%. The top contributors from the emerging markets over the period included India, South Africa, the United Arab Emirates, China and Kenya, besides others.

Ernst & Young Africa managing partner Ajen Sita stated that this reinforced the notion of African countries’ growing optimism and confidence about the continent’s progress and future.

While investment into North Africa had largely stagnated, FDI projects into sub-Saharan Africa had grown at a compound rate of 22% since 2007. Among those countries attracting growing numbers of projects were Ghana, Nigeria, Kenya, Tanzania, Zambia, Mozambique, Mauritius and South Africa.

Further, highlighting the growing interest in Africa by foreign investors was the finding that Africa’s share of global FDI had increased over the past five years.

The latest data showed that, despite a fall in project numbers from 867 in 2011 to 764 in 2012, in line with the global trend, project numbers remained significantly higher than those that preceded the peak of 2008. The continent’s global share of FDI had also grown from 3.2% in 2007 to 5.6% in 2012.

Despite the ongoing challenging global economic situation, the size of the African economy had more than tripled since 2000. The outlook also appeared positive, with the region expected to grow by 4% in 2013 and 4.6% in 2014. A number of African economies were predicted to remain among the fastest-growing in the world for the foreseeable future.

Eighty-six per cent of respondents who had an established presence on the continent believed that the continent’s attractiveness as a business destination would continue to improve. Those surveyed ranked Africa as the second most attractive regional investment destination in the world, after Asia.

However, Sita pointed out that there remained a stark perception gap between those respondents who were doing business in Africa, compared with those yet to invest in the continent. Only 47% of those who had no business presence in Africa believed the continent’s attractiveness would improve over the next three years and ranked Africa as the least attractive investment destination in the world.

“There must be a shift in focus from convincing the sceptics, to those that are already doing business here,” Sita urged.

INVESTMENT HURDLES

Respondents who were present in Africa or who were looking to invest in the continent highlighted two fundamental challenges, namely transport and logistics infrastructure, as well as bribery and corruption.

The report suggested that at a macro level, Africa’s growth would be inherently constrained until its infrastructure deficit was bridged.

“Intra-African trade is being hampered by inefficient investment in road and rail to effectively interconnect the region,” Sita told representatives of the media.

However, strong growth had been occurring despite such infrastructure constraints, indicating the potential to not only sustain but also accelerate growth as the gap narrowed.

Ernst & Young’s analysis found that there were more than 800 active infrastructure projects across different sectors in Africa during 2012, with a combined value of over $700-billion, the majority of which was related to power and transport.

DIVERSIFICATION

Meanwhile, the trend of growing diversification continued, with an ever-increasing emphasis on services-, manufacturing- and infrastructure-related activities. In 2007, extractive industries represented 8% of FDI projects and 26% of capital invested in Africa; while in 2012 it was 2% of FDI projects and 12% of capital invested.

In comparison, services accounted for 70% of projects in 2012, up from 45% in 2007, and manufacturing activities accounted for 43% of capital invested in 2012, an increase from 22% in 2007.

Although mining and metals were still perceived by survey respondents as the sector with the highest growth potential in Africa, less than one-third of the continent’s growth had come from natural resources.

In contrast, interest in African infrastructure was increasing, with 21% of respondents identifying it as a growth sector versus 14% last year and only 4% in 2011. Other sectors where there had been a noticeable shift included information and communications technology, financial services and education.

Ernst & Young believed that the changing perceptions of relative sector attractiveness in Africa reflected the changing fundamentals of many Africa economies.

The majority of respondents indicated that they viewed South Africa as the most attractive African country in which to do business. This was seemingly owing to its relatively well-developed infrastructure, stable political environment and a relatively large domestic market.

Sita highlighted that, with an increasingly solid foundation of economic, political and social reform, together with resilient growth rates, Africa was on a sustainable upward trajectory.

“A critical mass of African economies will continue on this journey. Despite the fact that there will undoubtedly be bumps in the road, there is a strong probability that a number of these economies will follow the same development paths that some of the Asian and other rapid-growth markets have over the past 30 years.

“By the 2040s, we have no doubt that the likes of Nigeria, Ghana, Angola, Egypt, Kenya, Ethiopia and South Africa will be considered among the growth powerhouses of the global economy,” he stated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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