Business News of Friday, 30 November 2018
Ghana has moved up one place, up from eight to the seventh position, in the league of countries that attracts foreign direct investment (FDI) in Africa.
2018 EY Africa Attractiveness Report also ranked Ghana second in West Africa for FDI attractiveness.
EY Africa Attractiveness Survey and Report is by Ernst & Young Company designed to help businesses make informed investment decisions and governments to improve their respective business environment while lightening barriers that may intercept future growth.
Ghana in 2016 got 28 projects out of the 676 FDI projects that came to Africa putting it in the seventh position in Africa and third in West Africa.
In 2017, FDI projects in Ghana increased by 15 more projects to 43, displacing Ivory Coast at the second position in West Africa.
Nigeria moved up from the fifth position to fourth but lost the third position to Kenya who in 2016 was at the fifth position.
South Africa, once the clear leader in attracting FDI, now shares the top rank with Morocco.
This is the first time that South Africa has been challenged in terms of being the most preferred investment destination (measured by FDI project numbers).
Ethiopia jumped seven places to become the fifth-largest FDI recipient, its highest ranking yet.
These shifting FDI dynamics illustrate a broader trend outside South Africa, as growth across the rest of the continent accelerates, so they take a greater share of inbound investment.
Africa economic outlook
After facing its lowest economic growth in over 20 years, Sub-Saharan Africa (SSA) posted a slow recovery in 2017. The International Monetary Fund (IMF) forecasts a modest rise in the region’s GDP growth from 2.8 per cent in 2017 to 3.4 per cent this year.
In tandem with improved economic performance, Foreign Direct Investment (FDI) projects into Africa rebounded from their lowest level in a decade. Last year, Africa registered 6.2 percent growth in inward investment projects compared with 2016.
The report reveals that West Africa attracted 172 FDI projects in 2017; Nigeria has a 37 per cent share, Ghana with 25 per cent then Ivory Coast with 13 per cent whiles the rest shared the remaining.
Growth recovers, but remains vulnerable to rising global geopolitical tensions
Sub-Saharan Africa is expected to grow more rapidly in 2018 than it did in 2017, which was the slowest growth rate since the turn of the millennium.
It is forecast that growth across the sub-continent will recover to 3.4 per cent this year, from 2.8 per cent in 2017.
This still lags behind Asia-Pacific considerably, and over the medium term, Africa will find it difficult to reach beyond the 5 percent plus growth levels it achieved prior to the global financial crisis in 2008.
Multi-speed regional growth continues, led by East Africa
Once again, we see a divergence between slow-growth markets (South Africa, Zimbabwe and Namibia) and rapid growth ones (Cote d’Ivoire, Ghana, Mozambique and the whole eastern region). Major oil producers, Nigeria and Angola, lie somewhere between the two extremes.
Though these economies are recovering well because of significantly stronger oil prices, their growth might be challenged again should oil prices begin falling.
Underpinning the continent’s growth recovery is an urgent need for economic reform. The largest and third largest Sub-Saharan African economies, namely Nigeria and Angola, having suffered severe recessions through 2016 and into 2017, acknowledge the need for diversification.
This entails a need to adopt pragmatic policies, encouraging inward investment, at the time they need it most. Until recently, both countries have been reluctant to allow exchange rates to float freely, as a result of which, they faced prolonged recessions.
In the longer term, the growth outlook is improving. In the short term, however, weak macroeconomic fundamentals continue to have a knock-on effect on exchange rates and inflation.
Despite Weak growth, FDI project numbers in Africa increased by 6 per cent in 2017.
Foreign investors committed to 718 FDI projects in Africa in 2017, a 6 percent increase from 2016. Given the continent’s economic recovery during the year, this was in line with expectations that FDI would rise in tandem with higher growth. Increase in FDI was aided by a continuing shift from extractive to sustainable investment.
In addition, investors in Africa often take a long-term view to investment. They recognise that low growth rates are not permanent. Moreover, given the more positive growth outlook until 2020, investors are willing to invest more.
Another factor that may have played a role in boosting FDI numbers in 2017 was that companies sought to benefit from the sluggish growth environment by investing while currencies are weak and thus gain a cost advantage.
Africa’s investments are more evenly spread across the regions
Investment interest in Africa is shifting, with four out of five sub-regions jostling to become primary FDI destinations. In 2017, East, West, Southern and North Africa attracted around a quarter of FDI projects each, with the central region accounting for only a marginal share.
This is in stark contrast to the situation twelve years back, when North Africa accounted for just under half of total investments, and with East and West Africa attracting considerably less FDI.
The shifting investment landscape is a function of numerous factors, including growth, investment policy and to some extent regional integration initiatives, particularly in the east of the continent.
East Africa becomes the biggest regional attractor of FDI, with Kenya Leading
East Africa continued to register notable GDP growth in 2017, performing stronger than all other regions across the continent. For various reasons, other regions recorded slower growth with some facing recession. East Africa’s growth saw the region registering a notable 82 percent increase in the number of FDI projects compared with 2016.
This evident rise is from a rather low base in 2016, when the region’s share of FDI projects fell sharply. The FDI numbers in 2017 not only recovered from the prior year, but also made the regions Africa’s major FDI hub for the first time.
US investment holds momentum
The US remains Africa’s largest investor, reporting an expansion in FDI projects after two consecutive years of decline. US companies launched 130 projects in 2017, against 91 in 2016 (43 per cent growth rate).
RHC drove more than three quarters of this increase. In the past, US economic ties with Africa were driven by the African Growth and Opportunity Act (AGOA) — granting 40 African countries duty-free access to the US for approximately 6,400 products — and programs, such as Power Africa. While the US focus on Africa under President Donald Trump seems less of a priority, the US corporate sector, nevertheless, continues to express a keen interest in building a presence across the continent.