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Investment: EY Africa attractiveness survey shows decline

The EY attractiveness survey indicates that investor perceptions of Africa’s attractiveness have deteriorated slightly over the past year.

On Tuesday, the results of the 5thannual EY Africa attractiveness survey indicated that foreign direct investment (FDI) projects fell 8.4% in 2014, but remained well above the pre-2008 levels.

However, foreign direct capital investment into the continent surged to $128 billion, up 136% in 2014 – a five-year high, with the number of jobs created from FDI jumping 68% resulting in 188,400 new positions across Africa.

The report combines an analysis of FDI data into Africa since 2003, together with a survey of over 500 global business leaders, in over 30 countries, about their views on the potential of the African market.

Ajen Sita, Chief Executive Officer at EY Africa said: “In the past year, Africa has experienced stronger headwinds than in recent times. Consequently, economic growth this year is likely to be at its lowest in five years, dragged down by the impact of lower oil prices on the Nigerian and Angolan economies, the softening of other commodity prices, and South Africa’s sluggish growth.”

Sita added: “At the same time though, economic growth across the continent remains resilient. Sub-Saharan Africa will still experience the second highest economic growth rate in the world this year, with 22 economies growing at a rate of 5% or higher.”

Re-emergence of North Africa

Foreign investors are regaining their interest in North Africa, particularly in Egypt and Morocco as the political uncertainty following the Arab Spring in 2011 begins to fade.

North Africa attracted 22.2% more FDI projects in 2014 than in 2013, and accounted for slightly more than half (51%) of all African FDI capital inflows, against just 19.1% in 2013. The number of jobs created as a result of this FDI more than trebled to almost 80,000.

Traditional investors regain interest

Regionally, Western European and intra-African investment remain the top sources of FDI, although 2014 saw traditional investors, including North America and the Middle East, refocus attention on Africa.

US-headquartered companies led as the largest investors into Africa last year, launching 101 FDI projects, and accounting for 13.8% of total FDI projects in Africa, an increase from a 9.8% share in 2013.

South African investors were again prominent, initiating the second most FDI projects on the continent. UK investment was down substantially, but investors from the UAE and France were resurgent, ranking fourth and fifth respectively.

Sectors in vogue with foreign investors

A growing consumer class and rising urbanisation in Africa are shaping the continent’s future and defining new trends. In line with these trends, FDI inflows into real estate, hospitality and construction have surged, emerging as a leading sector for FDI with the percentage share in capital value at 43.8% and job creation at 33.6%.

In terms of numbers of FDI projects, the largest share of investor activity continues to be attracted by three consumer-facing sectors – technology, media and telecommunications, financial services, and consumer products and retail. One-third (31%) of the respondents to the survey also expect agriculture to emerge as a key driver of growth in Africa over the next two years.

Investor perceptions of the continent

Based on the results of the EY survey, under the banner of ‘Making Choices’, investor perceptions of Africa’s attractiveness have deteriorated slightly over the past year.

Sita said: “The shift in perceptions is the lowest since we initiated our [EY] survey. However, it is important not to overstate this deterioration. Overall, a majority of respondents were positive about the progress made in Africa over the past year, and believe the continent’s attractiveness as a business destination will improve over the next three years.”

Sita added: “Africa continues to rank favourably compared to other regions, particularly among respondents who know Africa well. In fact, those already doing business in Africa remain overwhelmingly positive, again ranking the region as the most attractive investment destination in the world.”

Nicolette Pombo-van Zyl
As the Editor of ESI Africa, my passion is on sustainability and placing African countries on the international stage. I take a keen interest in the trends shaping the power & water utility market along with the projects and local innovations making headline news. Watch my short weekly video on our YouTube channel ESIAfricaTV and speak with me on what has your attention.