Africa foreign direct investment flows plummet 67 percent
September 18, 2009
As the financial and economic crisis continues to spread across the world, Africa, where foreign direct investment (FDI) flows peaked in 2008 after six years of uninterrupted growth, will probably see a fall in inflows in 2009, UNCTAD's annual review of investment trends reports.
The World Investment Report 2009, released on Thursday, reveals that FDI inflows to Africa reached a record high of $88 billion (R655 billion) in 2008.
However, based on preliminary data, in the first quarter of 2009 they plummeted by roughly 67 percent year-on-year.
UNCTAD says FDI flows to the continent continued to be highly concentrated in only a few countries during 2008, marked by particularly strong growth in flows to West Africa.
Countries such as Ghana and Guinea saw their annual inflows more than double, to well above $1 billion each.
In southern Africa, the increase in inward FDI was almost entirely due to the strong performance of Angola and South Africa.
Central Africa and East Africa also posted growth in inflows, but at a much slower pace. Bucking this upward trend, in North Africa there were declines in inflows to Egypt (even after the $15 billion purchase of OCI Cement Group by Lafarge SA), the Libyan Arab Jamahiriya. and Morocco.
"The drastic fall in FDI to the continent in the first quarter of 2009 has important ramifications for development activities there, as FDI is a major contributor to gross fixed capital formation: its share was 29% in 2008."
Furthermore, FDI inflows to Africa's 33 least developed countries (LDCs), which peaked in 2008 after eight consecutive years of growth, are also at risk of falling.
This is due to a crisis-induced lull in the global demand for commodities, which is a major attraction for FDI in these economies," the report said.
FDI outflows from the continent, which make up only 3 percent of outflows from developing countries, are in decline.
They recorded a 12 percent fall, from $10.6 billion in 2007 to $9.3 billion in 2008, mainly due to divestments by South African transnational corporations (TNCs).
This is also reflected in a 17 percent decline in the value of cross-border mergers and acquisitions (M&As) undertaken by African TNCs.
However, despite the overall decline, there was a significant rise in the value of cross-border M&A purchases by African TNCs in the financial services sector.
Data for the first half of 2009 suggest there will be a further slowdown in overall M&A activity on the continent.
"The prospects for FDI in Africa are intimately tied to the revival of global markets. While China has increasingly become an important investor there, developed countries especially the United States and European Union countries remain crucial markets and sources of capital."
"Responses to UNCTAD's World Investment Prospects Survey 2009-2011 indicate that, compared to the previous year's survey, transnational corporations (TNCs) the world over are planning an increase in both the number and value of investments in Africa by 2011," says UNCTAD.
The report found that global FDI inflows continue to slide in 2009 and significant recovery is expected only in 2011.
The World Investment Report 2009 estimates that FDI inflows will fall from about $1.7 trillion in 2008 to below $1.2 trillion in 2009.
Recovery is expected to be slow in 2010, reaching no more than $1.4 trillion, but gathering momentum in 2011 to approach $1.8 trillion.
"The crisis has changed the FDI landscape, with a surge in the developing and transition economies' share in global FDI flows to 43% in 2008," it said.
In the aftermath of the crisis, and once the global economy is on its way to recovery, the exit of government funds from ailing industries could provide the catalyst for a new wave of cross-border M&As, the report notes.
Cross-border M&As a major source of growth of FDI in previous years declined considerably as financial markets seized up in the second half of 2008.
Taking that year as a whole, the value of such transactions fell by 35% to $673 billion (a level roughly equal to that of 2006), and so far in 2009 the rate of M&As has continued to fall.
Indeed, the year-on-year fall in cross-border M&As in the first quarter of 2009 was 76 percent.
The worst global economic and financial crisis in a generation has slowed the international production of goods and services by the world's estimated 82 000 transnational corporations and their 810 000 foreign affiliates, the latest World Investment Report reveals. - I-Net Bridge
|
|
