SCIENCE, TECHNOLOGY, AND SKILLS FOR AFRIC A’S DE VELOPMENT MARCH 2014 86060 Foreign Direct Investment Flows into Sub-Saharan Africa FDI remains one of the most important forms of cross-border KEY MESSAGES capital flow into developing n Foreign direct investment (FDI) remains one of the most countries. In 2012, FDI inflow into important forms of cross-border capital flow into developing developing countries amounted to countries. In Sub-Saharan Africa, where countries tend to have more than US$790 billion, exceeding liberal policies favouring inward flows, FDI has grown nearly six- by a wide margin the size of inward fold over the past decade. remittance (US$406 billion) and n However, just 15 countries accounted for over 80 percent of total official development aid (US$126 billion) from traditional OECD donors. FDI flows into Africa in 2012. Further, the largest inflows are either in sectors in which the region has a comparative advantage (such Outward FDI from developing as natural resources and agriculture) or where there is need for countries, including South-South investment and returns are high, such as construction. flows, are increasingly prominent. In n Five emerging countries – Brazil, China, India, South Africa and, 2012, US$481.6 billion of FDI flows (US$5 trillion of stock) originated in conspicuously, Malaysia, are becoming an important source of developing and transition countries. FDI into Africa, particularly as traditional OECD sources of FDI are They accounted for about 40 percent shrinking, and South-South transfer of technology tends to be lower cost and more adaptable. of FDI into low-income countries (mainly in Africa) in 2010. The source n There is a positive correlation between FDI and Human of Southern FDI is dominated by Development Indicator (non-income HDI); quality human capital Asia (64 percent), followed by Latin can better help absorb the benefits of FDI. But FDI data by origin, America (21.4 percent). Based on a destination and sector is not readily available; this constrains World Bank/UNIDO survey of 713 policy coordination across economic and social ministries. potential investing firms from Brazil, India, South Africa, and South Korea, level of 2007; however, in SSA, FDI remains a fast-growing destination. new market access is the most quickly returned to the pre-crisis level Brazil, China, India, Malaysia and important motivation of Southern of above US$35 billion. South Africa are now amongst outward FDI (nearly 70 percent), followed by lower production costs Africa today is a “bright spot” for FDI, the leading investors. However, (20 percent) and acquisition of natural according to UNCTAD (2013a), as it the traditional OECD sources still resources and inputs (5 percent). Figure 1. FDI in Sub-Saharan Africa Trends in FDI into Africa FDI flows into Sub-Saharan Africa 45 Outflow to WLD Inflow from WLD have grown nearly six-fold over the 35 past decade. The flows increased from about US$6.3 billion in 2000 to US$35 US$ billion 25 billion in 2012 (Figure 1). While this is still just 2.5 percent of total global 15 flows, it represents an unprecedented size of investment capital in most 5 African countries, much larger than remittances or official aid. Since the -5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 financial crisis, inflows into Africa have been less volatile than worldwide Source: UNCTAD (2014) inflows. In 2012, FDI inflows globally Note: FDI measured in US$ billions at current prices and exchange rate were only about 60% of the pre-crisis INDIA Figure 2. FDI inflows in 2003 and 2012: A comparison For various reasons, India’s outward 8 FDI to the world has been decreasing 6 since 2008. In 2008, FDI outflows from 4 India to the world peaked at US$21 billion, and have declined since to 2 about US$8 billion in 2012. Yet, a 0 large share of Indian FDI continues Rwanda Mozambique Uganda Angola Congo DR Ghana Nigeria Tanzania Zambia Kenya Madagascar Sudan South Africa Ethiopia Congo -2 to flow to least developed countries -4 (LDCs) in Africa and elsewhere. In the -6 immediate aftermath of the downturn -8 in outward FDI from India in 2007- 2003 2012 2008, Africa was the only region to Source: UNCTAD(2014) which its FDI outflows increased. Note: Values in US$ billions, current price India’s traditional focus has been Mauritius, but Ethiopia and Sudan are remain important. In 2009 & 2010, from 1.9 percentage points (pp) of also significant recent recipients. they accounted for nearly 50 percent economic growth in Zambia to 0.04 BRAZIL of flows into Africa, and in 2011, they pp in South Africa. The contribution of contributed about one-third. Chinese FDI was found to be high in Brazil’s FDI to Africa has been rising the Democratic Republic of the Congo in recent years with its main stock of Just fifteen countries accounted for (1pp), Nigeria (0.9pp), Madagascar investment being in the Portuguese- four-fifths of all inward flows into (0.5pp) and Sudan (0.3pp). speaking countries of Angola and Africa in 2012. In 2012, Nigeria and Mozambique. It has played a key role in Mozambique received the most FDI. OECD the expansion of Brazilian multinationals They were followed by South Africa, OECD countries accounted for about into the new African ethanol industry in Ghana, DRC, Congo and Sudan (all one-third of all inflows into the top Angola, Mozambique and Ghana. South exceeding US$2 billion). There are 15 African recipient countries on Africa and Zambia are also important nine countries in Africa that had average between 2001 and 2011. destinations; the Brazilian mining FDI inflows (net) that were at least 5 The largest FDI inflows into Africa company, Vale, is in a joint venture percent of GDP between 2008 and from OECD countries were France with the South African company, 2012. FDI also constitutes a large (US$4.9 billion), UK (US$4.1 billion), Rainbow, in copper prospecting and share of gross fixed capital formation the Netherlands (US$2.7 billion), USA mining in Zambia. Brazil and Zambia (GFCF) in several African countries. (US$1.8 billion) and Germany (US$1.3 have also signed technical cooperation The share of FDI in GFCF was at least billion). The largest recipient countries agreements covering livestock and one-third in Congo, DRC, Ghana, of FDI inflows from OECD were Nigeria health, and so future FDI could branch Madagascar and Nigeria. (US$5.3 billion), South Africa (US$4.4 out of the dominant minerals sector The influx into Africa is largely billion), Angola (US$2.2 billion), Liberia (UNDP 2013). driven by extractive industries (US$2 billion) and Ghana (US$0.61 with influential contributions by billion). MALAYSIA manufacturing and service sectors in Malaysia’s FDI outflow globally has Central Africa. Among these countries, CHINA increased nearly three-fold between Mozambique and DRC were able China is the leading Southern investor 2006 and 2012 from US$6 billion to to increase their share substantially in Africa by a wide margin. This is not US$17 billion. UNCTAD recognizes in 2012 compared to 2011. Angola surprising because globally, China Malaysia as the largest developing recorded the highest rates of return (excluding Hong Kong) is the third country investor in Africa. One-fifth of on FDI in 2011 with 87 percent, largest investor after USA and Japan. Malaysia’s outward FDI stock was held followed by Nigeria (36 percent) and Chinese FDI into the top 15 African in Africa, ahead of China and India. Zambia (13 percent). recipient countries increased six-fold Data from the IMF Coordinated Direct A substantial share of economic between 2004 and 2010. In 2010, Investment Survey (CDIS) indicates growth in Africa can be directly African countries that received a that Malaysia has invested in six of the attributed to FDI (even from a single sizeable inflow (more than US$100 SSA-15 for at least the past three years. source country). Weisbrod and Whalley million) in FDI from China include The big Malaysian investors in Africa (2011) estimate that between 2003 South Africa and Nigeria Angola, include companies like Petronas and and 2009, FDI from China contributed Kenya and the DRC (Table 1). Sime Darby. 2 SCIENCE, TECHNOLOGY, AND SKILLS FOR AFRICA’S DEVELOPMENT Table 1. FDI outflows from China (US$ million) 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total 5498 12261 17634 26506 55907 56529 68811 74654 84220 Africa 317 392 520 1574 5491 1439 2112 15 SSA countries 242.38 230.76 360.68 1178 5281 849.78 1388 Angola 0.18 0.47 22.39 41.2 -9.57 8.31 101 Congo 0.51 8.11 13.24 2.5 9.79 28.1 34.38 Congo DR 11.91 5.07 36.73 57.3 23.99 227.16 236.2 Ethiopia 0.43 4.93 23.95 13.3 9.71 74.29 58.23 Ghana 0.34 2.57 0.5 1.85 10.99 49.35 55.98 Kenya 2.68 2.05 0.18 8.9 23.23 28.12 101.2 Madagascar 13.64 0.14 1.17 13.2 61.16 42.56 33.58 Mozambique 0.66 2.88 - 10 5.85 15.85 0.28 Nigeria 45.52 53.3 67.79 390 162.6 171.86 184.9 Rwanda - 1.42 2.99 -0.41 12.88 8.62 12.72 South Africa 17.81 47.47 40.74 454 4808 41.59 411.2 Sudan 146.7 91.13 50.79 65.4 -63.1 19.3 30.96 Tanzania 1.62 0.96 12.54 -3.82 18.22 21.58 25.72 Uganda 0.15 0.17 0.23 4.01 -6.7 1.29 26.5 Zambia 0.23 10.09 87.44 119 214 111.8 75.05 Source: Statistical Bulletin of China’s outward foreign direct investment; UNCTAD (2013) Note 1: Values in US$ millions, current price SOUTH AFRICA projects that are being undertaken across sciences (healthcare), physical sciences countries. Table 2 shows the values of (sectors such as metal processing and South Africa is not only a major all greenfield investment by sector with paints) and ICT as well as investment in recipient of FDI, but also a major a combined worth of more than US$50 traditional sectors such as construction, source of FDI in Africa. According to million between 2009 & 2013. energy and food. Angola, Ghana and UNCTAD (2013), South Africa was the second-most important investor in Of the 13 SSA countries surveyed, South Kenya also show a fairly diversified Africa (from developing countries) Africa attracted the most diversified portfolio of greenfield FDI. The most in 2012 after Malaysia. The rise in portfolio of greenfield FDI with popular sectors for greenfield FDI outward FDI flows from Africa in investments in new industries such as life appear to be aligned with either Africa’s 2012–to $14 billion–was mainly due to large flows from South Africa in mining, the wholesale sector and Box 1. The Link between FDI and Human Development healthcare products. South Africa There is a two-way link between FDI and education/health outcomes. FDI can holds the fifth largest stock of FDI in foster growth that can then result in better education and health outcomes in Africa, with the largest proportion the medium-term; at the same time, better education and health achievements in Mauritius, followed by Nigeria, can help absorb FDI better. However, of the numerous African countries that grew as a result of the FDI surge in the 2000s, many fell below the 25th percentile and its neighbors, Mozambique and of the education and Zimbabwe. According to the IMF’s health components CDIS, in 2012, it also had a sizeable of the Human 27 stock of FDI in Ghana, DRC, Tanzania Development Index 25 and Zambia. (HDI) in 2000. FDI Log of FDI, 2001-2010 AGO in such countries is 23 NGA concentrated in the GHA ZAF Sectoral Allocation of resources sector, 21 ZAR ZMB Greenfield FDI with limited linkage 19 ETH TZA MDG BWA KEN Using data from fDi Markets, a fee- to the rest of the 17 based service from the Financial Times economy. If FDI were more broad-based 15 newspaper, which collects data on 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 and not confined to cross-border greenfield investments resource enclaves, Education and health indices (non-income HDI) in 2000 covering most countries and sectors, we it could have a Source: UNDP, WDI and UNCTAD (2014) are provided with a useful glimpse of greater impact on Note 1: Resource-rich countries identified as those with rents>10% of greenfield (not mergers and acquisition) development goals. GDP, or res. exports>50% of goods exports FOREIGN DIRECT INVESTMENT FLOWS INTO SUB-SAHARAN AFRICA 3 comparative advantage or their need for sector. In the more sophisticated sector are more amenable to mergers and critical investment, and therefore high of life sciences, Rwanda was the only acquisition type of FDI and not greenfield, rates of return. Energy (including oil, gas major destination beyond South Africa. and iii) measurement error in terms of and mining) remains the largest sector. Life sciences include healthcare (general data collection. It is also worth noting, In food, beverages and tobacco, Ghana medical and surgical hospitals), whereas however, that according to UNCTAD and Nigeria had the mammoth share physical sciences include investments in (2013a) in least developed countries (US$ 3.7 billion) of greenfield projects sectors like metal processing, paints, etc. many of which are in Sub-Saharan Africa, over the past five years. In construction, In the fDi Markets database, there is financial services continued to attract the Mozambique, Nigeria, Kenya and hardly any major greenfield FDI in the largest number of greenfield projects in Angola recorded the highest value of services sectors such as retail, tourism, 2012. With greenfield investments from FDI greenfield projects between 2009 financial services, professional services, developed countries shrinking almost and 2013 (worth about US$500 million and creative industries. There could be by half, nearly 60 per cent of greenfield each). Given the growing importance of three possible reasons for this: i) services investment in low-income countries was ICT and electronics, 7 of the 13 countries sectors are more restrictive in terms from developing economies, led by India. had substantial investments in this of foreign equity ownership ii) they Table 2. Greenfield FDI inflows by sector, total between 2009 & 2013 (US$ million) AGO COG ETH GHA KEN MDG MOZ NGA RWA ZAF SDN UGA ZMB Construction 485 200 68 480 578 456 226 253 59 Consumer Goods 205 375 Creative Industries Energy (includes oil, gas) 845 6337 3604 2273 315 7425 108 Environmental Technology 170 80 125 480 165 2081 500 Financial Services Food, Beverages & Tobacco 158 324 1687 175 117 2030 136 144 167 ICT & Electronics 561 69 60 4735 162 918 212 95 Industrial 229 Life Sciences 108 238 Physical Sciences 1490 4245 68 2268 2929 Professional Services Retail Trade Tourism Transport Equipment 460 95 1908 Transportation, Warehousing 95 & Storage Wood, Apparel & Related Products 72 2308 Source: fDi Markets Database for Greenfield FDI Note 1: Undiscounted project values summed by sector between 2009 and 2013 (past 5 years) Note 2: Only sectors with combined project worth exceeding US$50 million highlighted Note 3: Countries labeled using three letter codes from the International Organization for Standardization MORE ON THE TOPIC • Aleksynska, M., and O. Havrylchyk. 2011. FDI from the South: The Role of Institutional Distance and Natural Resources. Working Paper 2011-05. Centre D’Études Prospectives et D’Informations Internationales, Paris. • fDiMarkets. 2014. fDiMarkets database, www. fdimarkets.com (accessed 2014/02/16) • UNCTAD. 2012. “Investment Country Profiles: South Africa,” UNCTAD, Geneva. • UNCTAD. 2013a. “World Investment Report.” UNCTAD, Geneva. • UNCTAD. 2013b. “Global Investment Trends Monitor: The Rise of BRICS FDI and Africa.” UNCTAD, Geneva. • UNCTAD. 2014. “World Investment Report 2013.” Annex Tables, accessed on 2014/01/28): http://unctad.org/en/pages/DIAE/World percent20Investment percent20Report/Annex-Tables.aspx • Waglé, S (2011). “Investing Across Borders with Heterogeneous Firms: Do FDI-Specific Regulations Matter?” Policy Research Working Paper No. 5914. World Bank, Washington, DC. • Weisbrod, A. and J. Whalley. 2011. “The Contribution of Chinese FDI to Africa’s Pre-Crisis Growth Surge.” NBER Working Paper No. 17544. Cambridge, MA • World Bank. 2010. “Investing Across Borders: Indicators of FDI regulation in 87 economies.” World Bank, Washington, DC • World Bank. 2014. “World Development Indicators” (accessed on 2014/02/07)