LONDON - The number of projects funded in Africa by foreign direct investment (FDI) increased 64% in 2022 to 733, with Egypt taking the lion’s share of 149 projects worth $107 billion followed by South Africa with 157 projects worth $27 billion and Morocco with 71 projects worth $21 billion , according to a report published by the London-based accountancy firm Earnest Young.
Morocco is ranked as the third-best performing country for FDI on the continent behind South Africa and Egypt which, at $107 billion, attracted the largest share of the $194 billion capital investment into Africa.
Nigeria and Kenya dominated the West and East Africa regions respectively for amounts received and project size.
The sharp growth comes after slow economic activity during the pandemic years of 2020/21. Noting that “there is a relationship between growth, economic freedom and investment inflows,” EY’s report on investment attractiveness says African countries can boost investment by addressing issues including youth unemployment, increasing agricultural productivity and accelerating energy transition.
Executive summary
In recent years, foreign direct investment (FDI) into Africa has faced significant challenges, due to a series of global shocks which started with the COVID-19 pandemic.
1- The global economic downturn dampened investor confidence. Uncertainties surrounding the trajectory of the pandemic, then the start of the war in Ukraine, made investors cautious about committing capital to African markets.
2- Travel restrictions and disruptions to global supply chains impeded investment processes and created logistical challenges for investors — making it difficult for investors to conduct due diligence, negotiate deals and manage their investments effectively.
3- The pandemic highlighted vulnerabilities of certain sectors, such as tourism, hospitality and manufacturing, which previously attracted FDI. Lastly, inadequate health care, poor infrastructure and weak social safety nets in many African countries have added to the risk perception of potential investors, further impacting FDI inflows.
Nonetheless, investment into the continent has started to recover in 2022. South Africa led in terms of the number of FDI projects, but Egypt was the largest recipient of FDI in value terms. CleanTech emerged as a leading FDI sector in the 2022. There are emerging opportunities for FDI in sectors, particularly health care, digital technology, renewable energy and agriculture, which have shown resilience and growth potential.
In addition, the African Continental Free Trade Area (AfCFTA) and various regional integration initiatives are expected to create a more conducive environment for FDI by providing access to a larger market, eliminating trade barriers and enhancing regional cooperation.
To attract and retain investment, African governments could prioritize investment promotion and create favorable business environments that addresses youth unemployment, skills shortages and infrastructure constraints, among other issues.
For the full EY report, visit: https://assets.ey.com/content/dam/ey-sites/ey-com/en_za/topics/attractiveness/africa-attractiveness-2023/graphics/new-graphics/ey-com-en-za-2023-ey-africa-attractiveness-report-nov.pdf
