Africa's Economic Optimism Grows as Foreign Companies Strengthen Presence

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Africa's share of global foreign direct investment (FDI) grew from 3.2% in 2007 to 5.6% in 2012. Despite the impact of the ongoing global economic slowdown, the size of the African economy has more than tripled since 2000, according to Ernst & Young's (E&Y) "Africa Attractiveness Survey." The report was published recently to coincide with the "World Economic Forum on Africa" in Cape Town, South Africa.

The outlook appears to be positive, with the region expected to grow 4% in 2013 and 4.6% in 2014. A number of African economies are predicted to be among the fastest growing in the world for the foreseeable future.

"A process of democratization that has taken root across much of the continent; ongoing improvements to the business environment; exponential growth in trade and investment; and substantial improvements in the quality of human life have provided a platform for the economic growth that a large number of African economies have experienced over the past decade," said Mark Otty, E&Y's managing partner for Europe, Middle East, India and Africa (EMEIA).

Of the companies with an established presence in Africa, 86% believe that Africa's attractiveness as a place to do business will continue to improve. Survey respondents ranked Africa as the second-most attractive regional investment destination in the world, after Asia.

Investment in FDI projects from developed markets fell 20%, although U.K. FDI grew 9% year-over-year. U.S. and French investments were down considerably, but those from emerging markets grew again in 2012, continuing the trend over the past three years. Since 2007, emerging market investment in Africa has grown at a compound rate of 21%, while developed market investment grew only 8%.

Top project contributors from emerging markets are: India, with 237 projects; South Africa, with 235; the United Arab Emirates, with 210; China, with 152; Kenya, with 113; Nigeria, with 78; Saudi Arabia, with 56; and South Korea, with 57. In the same period, intra-Africa investment has grown 33%, with South Africa at the forefront of growth in intra-African trade and market investment. South Africa leads with a compound growth of 57% in locally originated investment projects in other parts of Africa, a position it has held since 2007.

Over the past few years, there has been an important shift in emphasis in investment markets and sectors. The E&Y report says that while investment in North Africa has largely stagnated, FDI projects in Sub-Saharan Africa have grown at a compound rate of 22% since 2007. Among the star performers attracting growing numbers of projects are Ghana, Nigeria, Kenya, Tanzania, Zambia, Mozambique, Mauritius and South Africa.

There is an increasing emphasis on services, manufacturing and infrastructure-related activities. In 2007, extractive (mining) industries represented 8% of FDI projects and 26% of capital invested in Africa. In 2012, it had shrunk to 2% of projects and 12% of capital. Set against this, services accounted for 70% of projects in 2012 (from 45% in 2007) and manufacturing activities accounted for 43% of capital invested in 2012 (from 22% in 2007).

Mining and metals is still perceived by survey respondents as the sector with the highest growth potential in Africa; however, those who believe this is down from 38% in 2012, and 44% in 2011.

African infrastructure commands increasing interest, with 21% seeing it as a growth area, against 14% last year and 4% in 2011. Other sectors seeing an upward shift are ICT, from 8% to 14% year-over-year; financial services, from 6% to 13%; and education, out of nowhere to 10%.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.