Africa’s Foreign Direct Investment halves in 2020
By Jeph Ajobaju, Chief Copy Editor
Africa’s Foreign Direct Investment (FDI) inflow dropped 50 per cent in 2020 in the face of its steepest economic recession in five decades caused by the pandemic.
The latest Ernst & Young (EY’s) 11th Africa Attractiveness Report said broad services sector, including business services, telecoms, media and technology, financial services and consumer, attracted 72 per cent of Africa’s FDI.
The extractive sector – mining, oil and gas – accounted for 4 per cent of FDI inflows.
“This could be ascribed to its still largely resource-export dependent economies, which felt the impact of commodity price declines and rapidly decreasing demand, particularly from China, causing them to fall into recession,” explained Anthony Oputa, EY’s regional managing partner for West Africa and Nigeria country leader.
He said Africa, along with the rest of the world, was significantly impacted by the pandemic, causing lots of business disruption across industries and sectors.
“All hope is not lost. Despite the drop in FDI, Africa is on the path to multi-speed recovery. While Foreign Direct Investment fell sharply in 2020, this is only half the story.
“The share of FDI into services sectors is rising rapidly, which will support job creation over time.”
The report, quoted by The PUNCH, said FDI is shifting away from extractive industries as an increased global focus on environmental sustainability requires a step change across the corporate world.
“This addresses the green energy transition and related concerns that form part of the corporate embrace of ESG – environmental, social and governance issue,” the report noted.”
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Africa’s economy transforming
Olufemi Alabi, EY Partner and Strategy and Transaction Lead, said Africa’s economies had been rapidly transforming through the first two decades of the new millennium, making them less dependent on extractive industries as they aim to become more sustainable and competitive.
“Investors are moving away from oil exploration and mining to ‘new age’ sectors, including ICT, retail and business services. This trend is likely to accelerate as energy investors are increasingly compelled to meet stringent zero net carbon emission targets,” he added.
The report said Africa’s overall GDP contracted 2.4 per cent in 2020 but less than the 3.6 per cent contraction in overall global GDP.
Investment flows are changing, and it is the services sector that is enticing the lion’s share. Environmental concerns are among the factors driving this shift.
Though extractives accounted for a considerable portion of inbound capital (31 per cent) between 2016 and 2020, they rank low in comparison with both services and industry in project numbers (7 per cent) and the share of jobs created (11 per cent).