Foreign direct investment (FDI) inflows to South Africa slumped to a ten-year low of only $1.8-billion in 2015, a 69% decline, the latest World Investment Report (WIR16) shows.
Inward FDI into Africa’s most developed economy was recorded by the United Nations Conference on Trade and Development (Unctad) as being $5.7-billion in 2014, having peaked a year earlier at $8.3-billion.
The weak performance came amid a 2% increase, to $17.9-billion, in FDI into the Southern African region as a whole. However, this rise was driven mainly by a record $8.7-billion inflow to Angola, which was largely attributable to intracompany loans. Mozambique was the second-largest regional recipient with inflows of $3.4-billion, 24.3% down on the 2014 figure.
Unctad attributed the South African slump to a “lacklustre economic performance, low commodity prices and higher electricity costs”.
South Africa’s inward FDI stock, at $125-billion, remained large in the regional context, however, with Southern Africa’s inward stock standing at $195-billion.
The country’s FDI outflows also fell 30% last year to $5.3-billion, from $7.7-billion in 2014.
South Africa remained the continent’s largest homegrown investor, but China overtook it as the largest investor from a developing country. Developed economies, led by the UK, the US and France, remained the largest investors in the continent.
South Africa’s outward FDI pullback came amid a 25% decline in FDI outflows from Africa as a whole, to $11.3-billion.
“Investors from South Africa, Nigeria and Angola reduced their investment abroad owing to factors such as lower commodity prices, weaker demand from main trading partners and depreciating national currencies,” the reports states.
Nevertheless, South Africa’s outward FDI stock rose to $163-billion, with a good portion held in the rest of Africa.
FDI inflows to Africa, meanwhile, also fell to $54-billion – a decrease of 7.2% when compared with 2014.
The WIR16 states that rising investment into North Africa – FDI to Egypt rose nearly 50% to $6.9-billion – was offset by decreasing flows into sub-Saharan Africa, especially in natural-resource-based economies in West and Central Africa. Inflows to Nigeria also fell to around $3.2-billion.
International FDI inflows, however, rose 38% to $1.76-trillion dollars on the back of a surge in cross-border mergers and acquisitions to $721-billion, from $432-billion in 2014.
Flows to developed economies nearly doubled to $962-billion, up from $522-billion in 2014, with the share of developed economies in world FDI inflows surging from 41% in 2014 to 55% in 2015. In the US, FDI almost quadrupled to $379-billion, making it the largest recipient of FDI in 2015.
However, much of the corporate activity was attributed to strategic reasons and for tax inversion purposes. Discounting for these large-scale corporate reconfigurations implies a more moderate increase of about 15% in global FDI flows, the WIR16 states. The value of announced greenfield investment was $766-billion.
Despite the depressed global economic environment, Unctad expects FDI inflows to Africa to recover in 2016, owing to liberalisation measures and some privatisation of State-owned enterprises.
“FDI inflows to Africa are expected to return to a growth path in 2016, increasing to $55-billion to $60-billion. This increase is already becoming apparent in announced greenfield projects in the first quarter of 2016, particularly in North Africa, but also in Mozambique, Ethiopia, Rwanda and United Republic of Tanzania,” Unctad says.
FDI flows are also expected to increase in Kenya and Tanzania, which now allow 100% foreign ownership of companies listed on their stock exchanges. Privatisation of State-owned commodity assets in countries such as Algeria and Zambia could also provide a boost to inflows.
Globally, however, FDI flows are expected to decline in both developed and developing economies during 2016, with Unctad forecasting that FDI flows are likely to contract by between 10% and 15%.