Since 1990, FDI inflows to Africa have overall been increasing. But they still represent a small share (about 5 per cent) of total FDI flows to developing countries.
A survey of 44 African investment promotion agencies (IPAs) conducted by UNCTAD for the 1999 World Investment Report (1), released today, indicates that prospects for increased FDI flows into Africa have improved. Of the 31 agencies that responded, the vast majority expected FDI prospects for the period 2000-2003 for their own country, as well as for Africa in general, to "improve" or be "significantly improved".
Most respondents considered that "many" African countries are better placed to do business than the negative image of Africa would suggest. Among these, South Africa, Nigeria, Botswana, Côte d´Ivoire and Tunisia stand out as countries most frequently mentioned as the most attractive destinations in Africa for FDI in the period 2000-2003.
As for prospects of creating a business-friendly environment, Botswana tops the list, followed by South Africa, Nigeria, Uganda and Côte d´Ivoire. In addition, six of the top ten countries most frequently mentioned in connection with an improvement of the business environment singled out by UNCTAD earlier this year as "African FDI front runners" namely, Botswana, Ghana, Mozambique, Namibia, Tunisia and Uganda demonstrated a particular dynamism in attracting FDI throughout the 1990s.
The most attractive industries for FDI in the past three years (1996-1998) were telecommunications, food and beverages, tourism, mining and quarrying and textile and leather (figure 1). Four most frequently mentioned industries were either from the manufacturing or services sectors. Tourism ranked first followed by food and beverages, textile and leather as well as telecommunications, (figure 2). Agriculture and mining and quarrying ranked in only fifth and sixth positions respectively. Petroleum, gas and related production were ranked near the bottom, possibly reflecting the very low world prices for hydrocarbons in 1998.
In terms of national factors likely to have a positive impact on TNC decisions to invest in their country, profitability of investments, the regulatory and legal framework and the political and economic outlook for FDI were most frequently mentioned. Access to regional markets (and to a lesser extent global markets), trade policy, the tax regime as well as access to low-cost skilled labour were also mentioned by most investment agencies as positive factors. Only half of the participating agencies considered access to low-cost unskilled labour, and relative low costs of doing business, to be particular advantages for their country in attracting FDI.
The most frequently mentioned factor with a negative influence on likely TNCs investment in 2000-2003 was extortion and bribery. Other frequently mentioned negative factors include high administrative costs of doing business, the lack of skilled labour, and problems related to access to finance for investment. These factors received more negative than positive answers, underlining that they are core problem areas for prospective FDI into Africa.
The positive and negative factors cited suggest a feeling shared by many IPAs that the legal and regulatory framework and investment incentive schemes are less of a problem for foreign investors than the implementation and administration of laws and regulations on a daily basis (i.e. the cost of doing business).
The survey identified a number of areas in which IPAs feel that improvements could be made. Among the most important policy changes they deem necessary to further attract FDI, they gave priority to those related to political stability; macro-economic stability; deregulation of the economy and privatization and business facilitation measures including measures to facilitate the administrative decision-making processes and increased transparency.
Although African countries lag behind other developing countries regions in terms of attracting FDI inflows, the survey of IPAs indicates there are a number of industries that could be particularly attractive to foreign investors. As WIR99 suggests changing Africa´s image is a task for African countries backed up by information on investment opportunities and an appropriate regulatory framework for FDI.
As reported earlier by UNCTAD (2) FDI inflows into Africa in 1998 amounted to $8.3 billion, compared to the record $9.4 billion achieved in 1997. This was largely accounted for by a decrease of flows into South Africa where privatization-related FDI - following an unprecedented surge in 1997 - fell back in 1998 to levels of previous years.