Africa to see tepid FDI growth in 2021 after 16% dip last year

UNCTAD says greenfield project announcements fell by 62%

Laptop with a business chart on the screen. Image used for illustrative purpose.

Laptop with a business chart on the screen. Image used for illustrative purpose.

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Africa’s tepid economic recovery and slow COVID-19 vaccine roll-out programme is likely to weigh on the scale of the investment in 2021, UNCTAD’s World Investment Report 2021 warned.

After falling 16 percent in 2020, foreign direct investment (FDI) flows to the continent is projected to grow by only 5 percent in 2021, lower than both the global and developing country projected growth rates, the report said.

Foreign investment fell to $40 billion in 2020 from $47 billion in 2019, the report said, as economic and health challenges due to the pandemic combined with low prices of energy commodities weighed heavily on foreign investment to the continent. While Egypt received the lion’s share of the funds, it was still 35 percent lower than in 2019, the report said.

The report showed that commodity-dependent countries were affected more severely than non-resource-based economies.

“The challenging environment affected all aspects of foreign investment,” said UNCTAD’s director of investment and enterprise, James Zhan.

Greenfield project announcements, a measure of investor sentiment and future FDI trends, fell by 62 percent to $29 billion, from $77 billion in 2019.

Cross-border mergers and acquisitions (M&As), fell by 45 percent to $3.2 billion, from $5.8 billion in 2019.

International project finance announcements, especially relevant for large infrastructure projects, plummeted by 74 percent to $32 billion.

FDI inflows to North Africa contracted by 25% to $10 billion, down from $14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, albeit with a significant reduction of 35 percent to $5.9 billion in 2020.

Foreign investment in Africa directed towards sectors related to the Sustainable Development Goals (SDGs) also fell considerably in nearly all sectors in 2020. Renewable energy was an outlier, with international project finance deals increasing by 28 percent to $11 billion, from $9.1 billion in 2019.

On the other hand, FDI outflows from Africa fell by two thirds in 2020 to $1.6 billion, from $4.9 billion in 2019, the UNCTAD report said.

IMF sounds warning

Meanwhile, IMF managing director Kristalina Georgieva on Wednesday appealed for more aid to African countries to help them bounce back from the pandemic, warning that the continent faces slower growth, rising debt levels and a shortage of vaccines.

"Africa is now facing the world's fastest growth rate for new COVID cases, with an exponential trajectory even more alarming than during the second wave in January," she said at the African Development Bank's annual meeting.

"It is a human tragedy – and an economic calamity."

The Washington-based lender warned that Africa will see only a 3.2 per cent expansion, excluding oil-rich Libya, compared to 6 percent growth for the global economy.

(Reporting by Brinda Darasha; editing by Seban Scaria)

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