UNCTAD’s World Investment Report 2020 on Africa did not reveal anything that was not expected. Yet, to have a proper perspective of the report, www.trendsnafrica.com feels that the report should be read from four angles. Foremost is the forecast for the year 2020. Undeniably, it is a mirror image of what has been happening globally. Secondly, the actual investment flows for 2019 as compared to the previous year (2018). Thirdly, what could be the drivers that could upset the widely held view that the year 2021, at least, the first two quarters, would be as bad, if not worse , as that of the last two quarters of the year 2020. Fourthly, a not so discussed paradigm, is the flow of investments of African countries abroad.
The trend of declining foreign investment in 2020, as things stand now, cannot have a different narrative, given that ill-effects of the pandemic are still at large, without much signs of bottoming out at least till the end of this calendar year. The forecast of contraction, therefore, pegged between 25% and 40%, is not far off the mark. The only factor that can at least moderate the slide is a rise in oil and commodity prices. Given that the world manufacturing sector is deeply affected by the pandemic and a dramatic turnaround in the next two quarters is difficult, the growth traction may not buck the prediction. The report also brings to the fore the cataclysmic impact of the pandemic on some of the sectors including aviation, tourism, hospitality and leisure, which have come to a standstill. Though most of the countries are reopening these sectors in a gradual way, it
might take a while for these sectors to be on rail to ensure larger flow of investments.
The actual investment flows during 2019 is a mixed bag. Countries like South Africa and Nigeria, traditionally hotspots for attracting investments, had recorded a drastic drop in the flow of investments for different reasons. While in South Africa, it is said to be on account of the combined effect of pandemic and continued recession since 2009, in Nigeria it is due to tightening of the rules and regulations. Investors also complain that ease of doing business in sub-Saharan Africa, which has led to a dramatic increase in the flow of FDI in 2018, has not progressed much since that time. The only country, which stands out is Egypt in Northern Africa, which had registered an increased inflow by 11% to peak at US$ 9 billion in 2019, though the region (Northern Africa) as a whole, FDI flow decreased by 11% to US$14 billion.
What holds promise for the next decade, which will unfold in the next three months? While analysts discount a quick turnaround after the pandemic, there are expectations of a quick recovery in Africa since the negative impact of the Covid-19 was relatively less felt in the continent. There are reports major investors, such as the US, China, EU and China are putting in place their Africa –focused plans much ahead than in other regions. While China is readying their plans to infuse more capital in the infrastructure sector as a part of its Belt and Road Initiative, the US is evolving a strategy for investing in countries like Ethiopia and other least developed countries in the region. Interestingly, there are some trend setters among investors. For instance, France and the Netherlands are focusing on small businesses for investments. While the Netherlands is giving importance to agribusiness, France is targeting investment in small manufacturing companies.
The commencement of trade under the African Continental Free Trade Area (AfCFTA), after years of deliberations and the expected finalization of its investment protocol soon augur well for attracting investments to the continent. The dismantling of the tariff walls , promotion of intra-trade and investment promotion should be the pathways for integration of the market. Still, the continent has to go a long way in shedding rhetoric to catch up with the real challenges.
While the African countries are vying for attracting investments, there are a few countries, which are investing abroad. Among that group include South Africa, Egypt, Morocco and Ivory Coast. That is also the route to attract more inward investments, for historical evidence indicates two-way flow of investments is a better indicator of maturity of an economy. .
