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FOREIGN DIRECT INVESTMENT IN AFRICA SHRINKS
Marks first decline since mid-´90s
17 September 2001
Foreign direct investment (FDI(1)) inflows to Africa, including South Africa, slumped last year, bringing down the continent´s already low share in world FDI inflows to below 1%, according to the World Investment Report 2001(2) published today by the United Nations Conference on Trade and Development (UNCTAD).
The decline - from $10.5 billion to $9.1 billion - contrasts sharply with a $2.2 billion rise in 1999, and marks the first major drop since the mid-1990s. It is largely the result of slowdowns in a small number of countries, including Angola, Morocco and South Africa, Africa´s main recipient countries, for which inflows dropped significantly (see figure 1). But for many African nations, FDI continues to play an important role in financing capital formation.
Outflows from Africa remain marginal, except for South Africa, but inflows - which are much higher than they were in the early 1990s, mainly due to government efforts to create a more business-friendly environment - underwent a number of changes last year:
- Flows to sub-Saharan Africa fell from $8 billion in 1999 to $6.5 billion in 2000. The decline was for the most part attributable to the drop of inflows into Angola (mainly due to cyclical investment behaviour in its petroleum extraction industry) and South Africa (as a result of reduced privatization and mergers and acquisitions activity). In 20 other countries, inflows also declined, but the reductions were rather small. The list of the subregion´s major recipients is largely unchanged, with such oil producers as Nigeria and Angola topping the list, followed by South Africa.
- Within sub-Saharan Africa, the Southern African Development Community(3) (SADC) registered the most significant gains in both absolute and relative terms since the early 1990s. While FDI inflows into this grouping fell from $5.3 billion in 1999 to $3.9 billion in 2000 - again due to the developments in Angola and South Africa - this is still substantially above the average level of $3.0 billion received by current SADC members during 1994-1998. Strong increases were reported for such nations as Lesotho, Mauritius and Tanzania, but flows to other SADC countries declined: Zimbabwe, for example, plunged from $444 million in 1998 to $59 million in 1999 and only $30 million in 2000, essentially due to political tensions.
- Due to the decline in Angola, FDI flows into the 34 LDCs in Africa dropped from $4.8 billion in 1999 to $3.9 billion in 2000. Angola aside, however, the group maintained almost the same level as the previous year. The African LDCs were in fact the only regional grouping of LDCs to increase inflows in recent years. Their share of all LDC inflows stood at 90% in 1999-2000, up from the 1990-1998 average of 69%.
- North Africa remained at almost the same level as the previous year ($2.6 billion). Flows declined into Morocco - where a major privatization deal in the telecommunications sector had inflated FDI inflows last year - and Algeria. Flows to Sudan, where FDI is concentrated in petroleum exploration, rose, from $370 million to $392 million. Egypt kept its number-one spot in the subregion, with slightly increasing inflows ($1.2 billion, up from $1 billion in 1999).
South Africa accounted for 43% of Africa´s $1.3 billion FDI outflows last year, making it by far the continent´s most important source of FDI. It is also the home country for all four of the top 50 developing country transnational corporations (TNCs(4)) headquartered in Africa(5) (see TAD/INF/PR/29). The country has seen a major restructuring of its industry, long dominated under the apartheid regime by quasi-monopolistic conglomerates with interests in a wide range of industries and few investments abroad. For big South African companies, the end of apartheid also meant the beginning of a new era of intensified competition, forcing them to concentrate on core businesses and to divest from fringe activities. At the same time, such companies as South African Breweries and Sappi (in the paper industry) realized that an internationalization strategy which included acquisition of companies abroad to explore new markets, and listing on foreign stock exchanges (most notably in London) to tap into foreign capital sources, was essential for survival in the new climate of global competition.
1. "Foreign direct investment" is defined as an investment involving management control of a resident entity in one economy by an enterprise resident in another economy. FDI involves a long-term relationship reflecting an investor´s lasting interest in a foreign entity.
2. The World Investment Report 2001: Promoting Linkages (Sales No. E.01.II.D.12, ISBN 92-1-112523-5) may be obtained at the price of US$ 49, and at a special price of US$ 19 in developing countries and economies in transition, from United Nations Publications, Sales Section, Palais des Nations, CH-1211 Geneva 10, Switzerland, F: +41 22 917 0027, E: email@example.com, Internet: www.un.org; or from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, N.Y. 10017, USA; T: +1 212 963 83 02 or +1 800 253 96 46, F: +1 212 963 34 89, E: firstname.lastname@example.org.
3. Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.
4. "Transnational corporations" comprise parent enterprises and their foreign affiliates: a parent enterprise is defined as one that controls assets of another entity or entities in a country or countries other than its home country, usually by owning a capital stake. An equity capital stake of at least 10% is normally considered as a threshold for the control of assets in this context.
5. In terms of foreign assets, 1999: Sappi Ltd., South African Breweries Plc, Barlow Ltd. and De Beers Consolidated Mines.
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