Lower FDI declines in Africa in 2009 as new investors provided a buffer, UNCTAD report says

Geneva, 22 July 2010 - After almost a decade of uninterrupted growth, foreign direct investment (FDI) flows to Africa declined by 19% in 2009, to $59 billion. But this decline is low compared to other developing regions because new investors provided a buffer, says UNCTAD´s World Investment Report 2010(1) .

The Report, subtitled Investing in a Low-Carbon Economy, has been released today. It stresses that the decrease in FDI in 2009 was mainly due to a contraction of global demand for, and prices of, African export commodities. Although the decline was moderate, it still had major repercussions for a region where FDI flows account for about a fifth of gross capital formation and is a vital source of job creation and technology dissemination.

In 2009 the extent of the decline varied by subregion. West and East Africa, the main beneficiaries of the previous commodity boom, experienced declines in FDI inflows. Flows to North Africa also declined despite the fact that the subregion´s more diversified sectors received FDI and sustained privatization programmes. Southern Africa also saw its inflows drop sharply, although it remained the largest recipient subregion. By country, Angola continued to be the largest recipient, followed by Egypt and Nigeria (figure 1). In 2009, South Africa was the largest investor from the region, after the negative outflows recorded in 2008 (figure 1).

While foreign investment in manufacturing was under severe strain, FDI inflows to the primary sector were at a low level due to the collapse in commodity prices and the drying-up of international financial resources (several mining exploration and exploitation activities were suspended or scaled back in such countries as the Democratic Republic of the Congo and Mozambique). The services sector, led by the telecommunications industry, became the dominant FDI recipient and attracted the largest share of cross-border M&As in Africa. While the distribution of FDI by industry shows a concentration in the mining industry in terms of value, the manufacturing sector accounted for 39% of the total number of greenfield investment projects in 2009.

Investment by transnational corporations from developing and transition economies to Africa has grown fast in recent years, providing new sources of development opportunities for the region. These new sources of investment are expected to be more resilient to the crisis than traditional ones, providing a potential buffer against the negative impacts.

Some countries introduced policy measures to promote foreign investment by lowering corporate taxes (e.g. Gambia and Morocco) or improved their general investment policy environment (e.g. Rwanda and Libyan Arab Jamahiriya). In contrast, there was also a tightening of the regulatory framework by adding local content requirements (e.g. Nigeria) or by introducing new foreign ownership limitations (e.g. Algeria)

FDI flows to Africa will recover gradually in the future once global economic and financial conditions improve and commodity prices rebound as expected, UNCTAD predicts.

ANNEX

Tables and figures

Figure 1. Africa: top 10 recipients and 5 sources of FDI flows, 2008, 2009a (Billions of dollars)

a) Inflows

b) Outflows

Source: UNCTAD, World Investment Report 2010.

Note:a Ranked on the basis of the magnitude of 2009 FDI flows.