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Economic reform is making Africa an attractive market for FDI



EY has released the latest edition of its Attractiveness Programs in Africa report, revealing foreign direct investment (FDI) indicators across the continent are promising. A combination of political and economic changes appears to be attractive prospect for foreign investors.

FDI is crucial in Africa's current economic scenario.

The continent also has a young, vibrant population, and significant economic potential, which has made it attractive prospect for foreign investors for a number of years now.

 FDI averages in Africa

Some of the region's largest economies – including South Africa, Nigeria and Zimbabwe – have undergone major Political instability in the last two years, in addition to a string of corruption scandals in South Africa and political delays in Nigeria. Despite these factors, EY paints a sharp picture.

'In 2019 we have seen a further spread of political reform and adoption of continent-wide trade agreements, that create an enabling environment for economic growth and attraction of FDI. These developments provide a good foundation for economic growth and increased FDI flows, states the EY report.

The reforms EY to include the South African President's plan to draw as much as $ 100 billion in foreign investment over the next five years, among others.

 FDI to GDP ratio

Early last year, 44 of the 55 member states in the African Union signed the African Continental Free Trade Area Agreement (AfCFTA), allowing for the unrestricted flow of funds and goods on the continent.

The ratification of the AfCFTA has become a major boon to FDI prospects in the region , Over the course of 2018, more than 700 FDI projects were active in Africa, which accounted for nearly 120,000 jobs and more than $ 75 billion in capital. Most of the FDI pool comes from the US and France.

However, there is an increasing volume of FDI coming from emerging markets, which makes up 34% of the overall FDI share in Africa, and account for more than half of the jobs created.

 GDP growth in Ethiopia and Kenya

In terms of economic segmentation, most foreign companies appear to be investing in the services sector. Services draw 66% of the total FDI share, while the industrials sector draws 23%. Extractives draw only 11%. Not surprisingly, the technology, media and telecommunications sector accounts for most of the FDI in services.

While FDI has increased its economic growth across the continent, development in the region is far from equitable. While East Africa is growing at an impressive 7% on average, West Africa is just over 3%, while Southern Africa falls below the 3% mark. North Africa is growing at an average of just over 4%.

EY recommends a more robust financial structure to collaboratively improve this scenario. Funding infrastructure must be sustainable and profitable. With an undue uncertainty geopolitical outlook, Africa is free to sign up for the Continental Free Trade Agreement, 'states the report.


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