STRONG PERFORMANCE IN FOREIGN DIRECT INVESTMENT IN AFRICA, BUT RESOURCE-RICH COUNTRIES DOMINATE

Accra, 18 April 2008 - Africa has witnessed strong growth in foreign direct investment (FDI) in recent years, with inflows rising to US$36 billion in 2006 from $2.4 billion in 1985 and likely to remain at about $36 billion in 2007 (figure 1). These findings are detailed in World Investment Directory: Africa, released today by the United Nations Conference on Trade and Development (UNCTAD) in conjunction with the opening of the Global Investment Forum at UNCTAD XII in Accra, Ghana.

African FDI inflows in 2006 were equivalent to about one-fifth of the region´s gross fixed capital formation (figure 1). In many countries, FDI rose in the primary and services sectors, partly because of exploitation of Africa´s vast natural resources and because of a wide range of national privatization schemes. As a result, inward FDI stock in the region rose to US$315 billion in 2006, continuing a long climb from $42 billion in 1985.

The recent surge of FDI inflows to the Africa region, particularly over the period 2001-2007 (figure 1), followed from the twin forces of an upward spiral in commodity prices and a more positive climate for investments. These changes were backed by reforms of policy frameworks for FDI, including, among other steps, changes in regulations related to natural resource exploitation. A number of African countries also have received commitments for increased aid from the international community. And international donors have offered to support regional development initiatives, boost infrastructure development and provide more market access, all of which contribute to FDI.

Recent rising FDI inflows have not, however, led to an increase in Africa´s share of global FDI: Africa´s share essentially has matched the continent´s share of global gross domestic product (GDP) and trade (figure 2). African FDI inflows remained stagnant at about 2-3% between 2000 and 2006 (2.7% in 2006). The expansion of FDI into the region also was lopsided. In 2006, the North Africa subregion and some of the region´s largest natural resource producers, such as Angola, Nigeria and South Africa (figure 3), accounted for the bulk of total FDI.

The top two FDI-recipient countries - South Africa and Nigeria - accounted for 37% of the region´s inward FDI stock in 2006. Moreover, their share of primary-sector inward FDI increased at the same time as their share of manufacturing-sector FDI declined (table 1). Similar changes took place in several other African countries. Only in a few countries did the share of manufacturing FDI inflows increase over the same period.

Developed countries have accounted for most inward FDI stock and flows to many African countries over varying periods (table 2). But FDI coming to the region from developing countries has grown recently, even while remaining relatively small. In particular, transnational corporations (TNCs) from developing Asia and within Africa are emerging as dynamic investors in Africa. Some 70% of FDI inflows to Tunisia in 2006 came from the United Arab Emirates alone, due largely to a 35% acquisition of Tunisie Telecom by a Dubai investment group.

In the effort to realize their FDI potential, many African countries have adopted new FDI policy measures and modified existing ones at the national level, and have entered into bilateral and other international investment arrangements. Reforms of investment laws have mainly aimed at liberalizing TNC entry and operations and at strengthening protections for foreign investment. The number of national policy changes related to FDI observed by UNCTAD has risen annually in the region since the early 1990s. In 2006, for example, 57 changes were noted by UNCTAD, 49 of which made investment environments more favourable for inward FDI.

At the international level, a major element in the efforts of African countries to improve the investment climate, promote openness and attract FDI is the initiation and signing of bilateral investment treaties (BITs) and double taxation treaties (DTTs). By December 2006, over 1,120 such treaties had been signed by African countries: 687 BITs and 438 DTTs. Over 70% of BITs and DTTs concluded by African countries were signed with developed countries, with European nations, mainly the United Kingdom, France, Germany and Italy having the greatest share. However, hitherto uncommon inter-regional BITs and DTTs with other developing countries outside the region appear to be occurring more frequently.

A number of countries in the region are also participants in key market-access initiatives offered by developed countries - especially the European Union and the United States - to developing countries in general or to African nations in particular.

The long-term outlook is promising for investment in raw-material value-chain activities. Particularly important for the region are recent changes in the United States´ African Growth and Opportunity Act (AGOA), which are expected to increase further the continent´s diversification into textile processing. FDI in oil and gas and other minerals is likely to remain robust in the medium term. Africa also could increase its share in global FDI through promoting investment in the manufacturing of basic and intermediate goods and industrial inputs for regional markets. This sector has suffered a decline in recent decades but could be revived with better-targeted policies.

ANNEX

Tables and figures

Figure 1 - Africa: FDI inflows and their share in gross fixed capital formation, 1985-2007a


Source: UNCTAD, World Investment Directory: Volume X Africa 2008.
a Preliminary estimates for 2007.

Note: North Africa includes Algeria, Egypt, Libyan Arab Jamahiriya, Morocco, Sudan and Tunisia and sub- Saharan Africa, the rest of the countries in Africa

Figure 2 - Shares of African countries in world FDI inflows, world GDP and world exports, 1980-2006 (Per cent)


Source: UNCTAD, World Investment Directory: Volume X Africa 2008.

Table 1 - Industrial distribution of inward FDI in selected African countries, selected years (Percentage share in total)


Source: UNCTAD, World Investment Directory: Volume X Africa 2008.
a The primary sector refers to the oil sector and unspecified refers to the non-oil sector.

Table 2 - Geographical distribution of inward FDI in selected African countries, selected years (Percentage share in world total)


Source: UNCTAD, World Investment Directory: Volume X Africa 2008.

Figure 3 - Africa: FDI inflows and stock, 2006 (Millions of dollars) FDI inflows Inward FDI stock


Source: UNCTAD, World Investment Directory: Volume X Africa 2008.