After fall in FDI flows to South Africa in 2019, report warns of big pandemic-induced slump
Foreign direct investment (FDI) inflows to South Africa decreased by 15% to $4.6-billion in 2019, the United Nations Conference on Trade and Development’s (Unctad’s) latest World Investment Report shows.
The fall follows on from a strong 2018 recovery, when inflows to South Africa more than doubled from $2-billion to $5.3-billion.
The new report describes the level of FDI inflows to South Africa last year as encouraging after a sustained period of depressed inflows between 2015 and 2017, when yearly FDI flows to the country were about $2-billion.
Nevertheless, the FDI outlook for South Africa and the rest of sub-Saharan Africa is negative, exacerbated by the dual shocks of the Covid-19 pandemic and low commodity prices.
Unctad is forecasting that FDI to sub-Saharan Africa will contract by between 25% and 40% in 2020 based on gross domestic product growth projections as well as a range of investment specific factors.
Similarly, global FDI flows are forecast to decrease by up to 40% in 2020, from their 2019 value of $1.54-trillion, bringing FDI below $1-trillion for the first time since 2005.
“The outlook is highly uncertain. Prospects depend on the duration of the health crisis and on the effectiveness of policies mitigating the pandemic’s economic effects,” Unctad secretary-general Mukhisa Kituyi says.
The projected sub-Saharan Africa pullback follows a 10% fall, to $32-billion, in FDI flows to the region in 2019, which Unctad attributed to a decline in investment flows to the traditional major recipient countries of Nigeria, South Africa and Ethiopia.
In 2020, all industries would be negatively affected by the shock, but several services industries – including aviation, hospitality, tourism and leisure – would be particularly hard hit.
Manufacturing industries in sub-Saharan Africa that are integrated into global value chains will also be strongly affected, which could undermine efforts to promote economic diversification and industrialisation.
A strong downward trend in FDI was already evident in the first quarter, with the number (-23%) and value (-58%) of announced greenfield projects for sub-Saharan Africa slumping. Likewise, the number of cross-border merger and acquisition projects targeting Africa declined by 72% in April when compared with April 2019.
Unctad warns that the prospect of a deep recession is likely to lead multinational enterprises to reassess new projects, while policy measures taken by governments during the crisis have also included new investment restrictions.
Investment flows are expected begin recovering slowly only from 2022, with Unctad forecasting a further 5% to 10% FDI fall in 2021.
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