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Africa: The next frontier for investors

Published date:
Friday, 25 May 2012

Economists say Africa will grow by 5.5 percent in 2012, with seven African countries expected to rank among the 10 fastest-growing economies in the world during the next five years, projections that are making the continent an increasingly popular destination for foreign investors.

"There is a new story emerging about Africa; a story of growth, progress, potential and profitability," global business consulting company Ernst & Young said in a May report on Africa's attractiveness for foreign direct investment (FDI).

"Africa certainly has all the makings of a compelling investment case -- natural resources, rapid economic and population growth, maturing political systems, a rapidly improving environment in which to invest and do business and investment returns that are second to none," the report said.

Foreign direct investment projects across the continent grew 27 percent in 2011 from 2010, a "stellar performance" that continued a longer-term trend of FDI growth by 153 percent in absolute terms since 2003.

But despite this growth, the survey of more than 500 investors and business leaders highlights a so-called perception gap of Africa's attractiveness.

"Those already doing business on the continent were overwhelmingly positive, ranking Africa's relative attractiveness above every other region except Asia, and even then, only marginally so," the report said.

"In stark contrast," it said, "respondents with no business presence in Africa were overwhelmingly negative." It said these respondents view Africa as "by far the least attractive investment destination in the world," citing risk factors such as political instability, corruption and security as major obstacles.

"This represents not so much a gap as a chasm between perception and reality," the report said, adding that "the facts tell a different story -- one of reform, progress and growth."

In addition to more than tripling its economic output during the past decade, Africa is rapidly democratizing, combating corruption and working to improve the climate and ease of doing business for foreign investors, the report states.

"The story of Africa's progress, not just in economic but also in socio-political terms, needs to be told more confidently and consistently," the report said.

It said regional integration is critical to accelerated and sustainable growth, and commended a growth in intra-African foreign direct investment of 42 percent since 2007.

"This means that over a period in which the annual number of FDI projects in Africa has more than doubled -- from 339 in 2003 to 857 in 2011 -- intra-African investment, as a proportion of the total number of projects, has also more than doubled," it said, adding that intra-African investment accounted for 17 percent of all new FDI projects on the continent in 2011.

The report also encouraged a focus on building infrastructure to enable increased intra-African cooperation, growth and development.

Assistant Secretary of State for African Affairs Johnnie Carson recently led a U.S. trade mission to Mozambique, Tanzania, Ghana and Nigeria to look at potential investment projects with the aim of enhancing the countries' ability to generate electric power -- a key infrastructure need for Africa. The mission, which was also co-sponsored by the Corporate Council on Africa, made a brief stop in Kenya as well.

June 14-15, 2012, the United States will host the 11th annual U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum, also known as the AGOA Forum, with the theme of "Enhancing Africa's Infrastructure for Trade." That forum will be followed by a U.S.-Africa Business Conference in Cincinnati, Ohio, June 21-22, which will echo the AGOA Forum's themes of infrastructure development, particularly in the areas of energy, transportation, water and sanitation.

Ernst & Young concluded that, with continued strong African leadership in government, the private sector and civil society, the continent is moving into the "premier league of investment destinations" as it seeks to unlock its full human and economic potential.

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