Africa sees surge in FDI projects, but perceptions remain hesitant

9 May 2012

Following a surge of American and Chinese interest in Africa, foreign direct investment in the continent increased by 27% last year, reaching about $82 billion. An Ernst & Young report broke the news, and went on to forecast further increases of up to $150 billion by 2015.

The number of jobs created by FDI grew by 16.5 percent from 2010 levels.  There was particularly strong growth in the metals and minerals sector, as well as in communications, food and tobacco. And whilst, as the FT points out, "capital investment was down by 7 per cent on the previous year," Ernst & Young explains the phenomenon as investors merely diversifying beyond capital-intensive mining, gas and oil projects into more service-oriented areas.

Whilst the number of South African and Chinese investment projects noticeably increased, the US was by far the biggest presence on the continent in 2011, "accounting for 124 out of a total 857, an 80 per cent year on year rise for the US", reports the FT.

Furthermore, according to the International monetary Fund, sub-Saharan Africa is expected to grow by about 5.4 percent this year. International companies have been increasingly interested in tapping into the growing middle class here. There have also been mounting concerns over the quality of the growth in terms of job creation and poverty reduction.

The good growth news is also restrained by the further conclusion of the report about the lagging effects of poor perceptions on the continent, particularly concerning political stability and corruption. In response to the report, The BBC highlighted the fundamental contrast between the perceptions of "those who had already invested in Africa and those who had not." The recent coups in Mali and Guinea-Bissau, as well as fighting between newly independent South Sudan and Sudan, are no doubt of little help to continental morale.

"Despite the high optimism, high growth and high returns, the perception gap exists and the African continent as a whole still attracts fewer FDI projects than India and far fewer than China," said Mr Sita, Ernst & Young managing partner.

SOURCES:

Africa sees 27% surge in FDI projects, The Financial Times, May 3 2012; Africa's share of foreign direct investment largest ever, BBC, May 3 2012; Expert challenge Africa to prepare for FDI flow, 7 may 2012

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