FDI inflows to Africa increase

The world’s next economic investment destination is Africa. Needless to say, this has continued attracting an increase in Foreign Direct Investment (FDI) on the continent.

The recent UNTAD statistics, show that for 2012 alone, FDI inflows to Africa increased by five per cent –reaching $50 billion. This made Africa the only region globally to record a rise in FDI in 2012.

However, despite the fact that these seem to be impressive statistics, the region accounts for a paltry 3.7 per cent of the global total FDI inflows of $1.35 trillion, although in the medium term, it projects that the number is set to grow more meaningfully.

“Despite the overall increase in FDI to Africa in 2012, West Africa and Southern Africa saw declining FDI inflows. Nigeria’s FDI declined to $7 billion in 2012 from $8.9 billion in 2011. Failure to pass the Petroleum Industry Bill, with regulatory uncertainty weighing on investment in Nigeria’s upstream oil sector, may well have been a factor,” Africa Regional Focus Overview by Standard Chartered pointed out.

Of the $50 billion FDI in the continent, East Africa, the next upcoming oil and gas economy, accounted for $6.3 billion –being an increase from $4.6 billion recorded in 2011.

The increase in FDI inflow figures in the EAC are attributed to the recent increase in resource discoveries, mainly oil and gas , which have been playing a significant role in attracting foreign investment and driving stronger long-term flows in the region.

And, as evidenced by the relative resilience of the Ugandan (UGX) and Kenyan (KES) shillings to the suggestion of quantitative easing (QE) tapering, also hints at the importance of the longer-term inflows to the region.

Traditionally, according to the report, East Africa has not done as well in attracting FDI as its counterparts in either Southern or West Africa, having neither the scale of South Africa nor the oil wealth of some West African economies.

However, with the recent resource discoveries, FDI is likely to increase gradually in Uganda, Kenya and Tanzania where oil and gas economies are yet to shape the economies.

For example; gas discoveries in Tanzanian deep sea and oil discoveries in the neighbouring East African countries like Turkana-Kenya and Lake Albert Rift Basin Uganda are certainly increasing hopes and potential prospects for further investment in the region.

But, even though there are higher prospects for investment in the bloc, high cost of doing business and unfriendly business investment environment are still retarding FDI inflows in the region.

Globally, according to the Doing Business Report 2014, East Africa still has a long way to go in attracting investors.

This requires speeding up various important reforms for preparing supportive business environment to investors with interests in the region. Tanzania for example, East Africa’s second largest economy has been ranked as having the most business-unfriendly environment in the region in the report.

The report reveals that Tanzania has dropped by 12 steps in the Doing Business Report 2014 – which is published by the World Bank and its private sector window, the International Finance Corporation (IFC). It is now holding the 145th position at global level.

For this year, as the report says, Tanzania has registered just two reforms while Rwanda which has been trailblazing the region for its business-friendly reforms for the past five years, has made eight reforms and Burundi six reforms.

Doing Business shows that economies with better business regulations are more likely to empower local entrepreneurs to create more jobs –as countries are moving in the right direction towards ending extreme poverty by 2030

Experts in the sector argue that gas discoveries in the region will not automatically be a blessing without challenges, and that things should not be taken for granted without recognizing and facing some impeding challenges including insufficient institutional and legal frameworks and insufficient human capital.

According to a 2013 World Investment report on Investment and Trade for Development, foreign direct investment (FDI) inflows to Africa increased by five per cent to $50 billion in 2012, even though global FDI fell by 18 per cent.

FDI inflows to North Africa increased by 35 per cent to $11.5 billion in 2012 and inflows to West Africa declined by 5 per cent to $16.8 billion.

Central Africa FDI increased to $10 billion but inflows to Southern Africa fell sharply from $8.7 billion in 2011 to $5.4 billion in 2012. East Africa FDI grew from $4.5 billion dollars in 2011 to $6.3 billion in 2012.
Source:The Citizen, reported by Sturmius Mtweve from Dar es Salaam, Tanzania
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