Sovereign ratings boost FDI injection into sub-Saharan Africa
The growth in sovereign ratings has increased foreign direct investment (FDI) into sub-Saharan Africa, Fitch Ratings said on Thursday.
The ratings agency said that research into the experiences of the increasing number of rated African sovereigns and those that remained unrated revealed a link between FDI and sovereign ratings.
Sovereign ratings had contributed to a marked increase in net FDI and added the equivalent of 2% of gross domestic product (GDP) in FDI in rated sub-Saharan African countries each year.
Net FDI entering sub-Saharan African countries increased by $6-billion a year during the period from 1995 to 1998, and a total of $35-billion was recorded from 2007 to 2011 on the back of a boom in commodity prices, mineral discoveries and, more recently, growing consumer spend, Fitch said in a statement.
“Improved macroeconomic conditions with high real GDP growth and lower inflation and increased political stability have also attracted market-seeking FDI in the service sectors … to respond to new consumer needs associated with rising incomes,” the agency added.
FDI in service sectors, including banking, retail and telecommunications, accounted for 34% of total greenfield projects in Africa in 2011.
The number of rated sovereigns in sub-Saharan Africa increased from one in South Africa in 1994, to 20 by last year, with South Africa, Nigeria and, more recently, Mozambique as the main FDI recipients.
However, commodity countries such as Angola, Ghana, Mozambique, Uganda and Zambia were becoming increasingly important.
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