TRALAC - Trade Law Centre

FDI inflows to sub-Saharan Africa on the rise

Saturday, 07 July 2012

Source: Business Live (South Africa)

Foreign Direct Investment inflows to sub-Saharan Africa (s-SA), which includes SA, jumped from US$29.5 billion in 2010 to $36.9 billion in 2011, a United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report released on Thursday showed.

“A rebound in FDI to SA accentuated that recovery,” the report noted.

UNCTAD expected the region to continue enjoying foreign investment inflows in 2012, mainly driven by interest from Asia.

In s-SA, with the exception of SA, net sales relating to mergers and acquisitions more than doubled over the first five months of 2012 compared with the same period last year.

The report noted that FDI inflow prospects for Africa as a whole were promising on the back of strong economic growth, ongoing economic reforms, and high commodity prices, which had improved investor perceptions of the continent.

Globally, forecasts were for a slowdown in the growth rates of FDIs in 2012. Flows for 2012 were seen at around $1.6-trillion, expected to rise to $1.8-trillion in 2013, and to reach $1.9-trillion in 2014 if no “horrendous macroeconomic shocks” occurred.

Foreign companies’ interest in SA continued in 2011, as suggested by the $4.6 billion jump in 2011 FDI inflows compared to 2010.

The report showed that South African FDI inflows amounted to $5.8 billion from $1.2 billion in 2010, making SA the second biggest recipient of FDI inflows in Africa last year.

Nigeria took the first position, with $8.9 billion in FDIs in 2011.

Head of research at the Industrial Development Corporation (IDC), Jorge Maia, said SA’s investment policies were “liberal” and not “very rigid” when compared to those in some other countries, which made it easier for foreigners to invest in the country.

Asian countries have in the recent past shown the most interest in SA.

In 2010, China’s Jinchuan Group and the China Africa Development Fund acquired a 45% share of Wesizwe Platinum for $200 million, but made a total of $877 million in funding available to the company.

The following year, the China Investment Corporation acquired a 25% stake in diversified investment company Shanduka, while the Jinchuan Group acquired base metals producer Metorex for $1.3 billion in the same year. Also, US retailer Wal-Mart acquired a 51% stake in SA’s Massmart in $2.4 billion cash deal.

There was speculation that the current debate pushed by the ruling ANC for more state intervention in the economy, and proposed higher taxes for the mining sector could spook potential investors.

Maia, however, said there was no reason for alarm, as the issues were still under discussion and that none were actual policy.

“It’s debate. Debate is good,” Maia said.

The report noted that in line with each country’s development strategy, investment policies needed to establish open, stable and predictable entry conditions for investment; as well as be regularly reviewed for effectiveness and relevance.