One third of transnational corporations (TNCs) that responded to a poll published today on foreign direct investment (FDI) in Africa say they want to increase investment in the next three to five years (chart 1). More than half of the companies expect their investments to remain at present levels.
The assessment emerged from a poll that was conducted jointly by the United Nations Conference on Trade and Development (UNCTAD) and the International Chamber of Commerce (ICC) at the end of 1999.
Only 6% of the companies that responded to the survey (box 1) said they plan to decrease their investments or pull out of Africa altogether.
More than 43% of the respondents expect that Africa´s overall prospects for attracting FDI will increase in the next three to five years compared with the past three years. Slightly more (46%) do not expect prospects to change.
The firms surveyed are among the world´s largest, as identified in UNCTAD´s World Investment Report 1999 (see TAD/INF/2826). Most have a presence in Africa but have less than 10% of their global foreign assets there. Of those that responded, 87% said they had affiliates in Africa, while 13% indicated that they did not.
A significant number of responses suggest that companies are cautiously upbeat about likely progress in improving investment conditions. Growth and size of local markets, and the profitability of FDI, are the most enticing factors — and were mentioned most frequently as influencing corporate investment decisions in a positive way.
On the negative side, the prevalence of extortion and bribery and difficult access to global markets were by far the most discouraging factors cited, followed by the overall political and economic outlook, access to capital and high administrative costs of doing business.
A majority of the companies (73%) assessed the overall potential for FDI in Africa as "limited" and only 12% found it to be "very large" or "large". Half of the companies (51%) saw investment potential in tourism, followed by telecommunications, which was identified by 43% of respondents as an industry with potential for FDI.
Other industries in which a significant number of companies saw investment potential in Africa were petroleum, gas and related products (37%) and mining and quarrying (37%), as well as agriculture (30 %), pharmaceutical and chemical products (22%) and foods and beverages, which were cited by more than a fifth of the respondents (chart 2).
The assessment of investment potential by industry varied according to region. The poll gave the following profile, demonstrating that Africa´s investment opportunities are perceived to be much broader than the traditional image of the continent as a mere provider of natural resources (1):
- North Africa: petroleum, gas and related products, telecommunications and tourism were the most frequently mentioned industries with investment potential, followed by agriculture and motor vehicles;
- West Africa: petroleum, gas and related products as well as mining, quarrying, agriculture, forestry and telecommunications;
- East Africa: tourism, followed with a considerable gap by telecommunications;
- Central Africa: the few investment opportunities seen were mainly in mining and quarrying, and forestry;
- Southern Africa: tourism and transport and storage, ahead of telecommunications, mining and quarrying, metals and metal products, motor vehicles, food and beverages, pharmaceutical and chemical products and agriculture.
South Africa, not surprisingly, easily topped the list of the most attractive countries for FDI in Africa (chart 3a). Egypt came second, followed at some distance by Morocco and Nigeria. This ranking is very much in line with the list of the most important recipient countries for FDI in Africa, since South Africa and Nigeria, together with the three North African countries of Egypt, Morocco and Tunisia, account for much of the FDI inflows into Africa (chart 3b). The survey results suggest that this order will not change dramatically in the near future.
South Africa was most frequently cited among countries that are expected to make the most progress in creating a business-friendly environment by 2000-2003 (chart 3c), followed by Morocco and Egypt. Next on the list are Tunisia, Côte d´Ivoire and Ghana, in that order.
Several least developed countries — among them Mozambique, Uganda, the United Republic of Tanzania and Ethiopia — figure in the list of countries seen as attractive destinations for FDI, as well as in the list of those expected to make the most progress in creating a business-friendly environment. This suggests that TNCs are already beginning to take a differentiated view of the 53 countries that make up Africa.
The results point to a severe image problem from which many African countries suffer: more than half of the respondents (56%) stated that the actual business environment is better than the continent’s image would suggest in at least a small number of African countries, while a quarter observed the same situation for “many” African countries. Only a small minority (6%) suggested that in no African country is the actual business climate better than the image perceived by the outside world. These results call for more efforts on the part of the international community to change the image of Africa and to provide a more differentiated picture of the continent, helping African nations to become more attractive for FDI.
All in all, the message emerging from the survey is clear: to quote Mr. Kofi Annan, Secretary-General of the United Nations, “The results of the UNCTAD/ICC business survey on the prospects for FDI in Africa are, indeed, encouraging. They show that it is indeed worthwhile for companies to have a closer look at investment opportunities in Africa”. ICC Secretary-General Maria Livanos Cattaui adds: “The inescapable conclusion is that foreign direct investment, coupled with the grass-roots development of a viable private sector, are key to economic and social progress in Africa. Good governance, a transparent and predictable regulatory framework, the rule of law and a stable society all contribute to a hospitable investment climate”.
The results of this survey are complemented by findings on the export performance of African countries, which were also released today by the International Trade Centre UNCTAD/WTO (ITC). They show that, for a considerable number of products, African exports have outperformed world exports, revealing a high level of competitiveness in the production of these goods (ITC Press Release No. 184).
To help Africa realize its investment potential, UNCTAD and the ICC are pursuing a number of initiatives, such as the production of a fact sheet entitled Focus on the New Africa, which compiles interesting but little-known evidence on FDI in Africa, including its high profitability. The two organizations have also teamed up to distribute the fact sheet to numerous corporate executives all over the world. In addition, they are collaborating on a project on “Investment guides and capacity-building in least developed countries”, which is currently being implemented in five African countries — Ethiopia, Madagascar, Mali, Mozambique and Uganda — and one Asian country (Bangladesh); the guide for Ethiopia has already been released. Both agencies are planning further activities to help African countries get back on the TNCs’ investment map.
Box 1: Who was surveyed? A technical note All in all, a total of 296 companies were surveyed between November 1999 and January 2000. The sample included 196 companies from UNCTAD’s top 100 TNCs database and the 50 largest TNCs from UNCTAD’s top 50 TNCs from developing countries. Companies from developing countries are themselves becoming an increasingly important source for FDI (15% of world FDI flows in 1998). As the top 100 and the top 50 databases do not include companies from the financial industry (including banks and insurances) for statistical reasons, but since on the other hand this sector accounts for a significant share in worldwide FDI flows and stocks, 50 companies from this industry were also included in the survey. The companies surveyed represent total foreign assets of US$ 2.1 trillion in 1997, or 17% of total foreign assets worldwide (a). These companies had 6.5 million employees abroad (representing a share of 21% of employees abroad of all TNCs worldwide) and foreign sales — for their affiliates abroad alone — of US$ 2.3 trillion (24% of total foreign sales by all foreign affiliates). Some 36% of the companies surveyed are based in Europe, 28% in North America, 20% in Japan and 16% in developing countries. A mere 1% of the surveyed companies come from Africa. In terms of industrial sectors, 7% of the industries included in the survey are companies from the primary sector, 49% are manufacturing companies, and 44%, service companies. All in all, 63 useful responses from companies were received representing a 21% response rate. They represent total foreign assets of US$ 658 billion in 1997, which corresponds to 5% of total foreign assets worldwide. These companies had 1.6 million employees abroad (or a 5% share of total foreign employment by all TNCs) and foreign sales — for their affiliates abroad alone — of US$ 625 billion (7% of total foreign sales by the foreign affiliates of all TNCs). About 59% of the companies that responded are based in Europe, 14% in North America, 11% in Japan and 13% in developing countries. Some 3% of the responding companies are headquartered in Africa. Compared to the overall sample, the share of European companies in the group of companies that responded is higher, while that of North American and Japanese firms is considerably lower. In terms of industrial sectors, 6% of the industries included in the survey are companies from the primary sector, 56% are manufacturing companies, and 37%, service companies. Some 81% of the responding TNCs produce for the local market, while 24% produce for export to countries outside Africa. Source: UNCTAD. a: This figure excludes the service companies and 12 companies from the top 100 and top 50 TNC lists, as only figures for total assets were available for these companies. Therefore, the actual share of the surveyed companies in total foreign assets worldwide should be considerably higher than 17%. |
