Although its economy has tripled in size over the past decade, and 11 of the 20 fastest growing economies in the next five years will come from the continent, Africa continues to suffer as a result of outdated misconceptions, which could hinder its FDI performance, according to a new report from the professional services firm Ernst & Young. Between 2007 and 2012, Africa recorded 12% growth in FDI projects, with FDI in sub-Saharan Africa growing at an even faster 22%, yet Ernst & Young found that companies operating outside of Africa continue to rank it as the least attractive region for investment.
“There is a real perception gap between foreign multinational companies that are doing business on the continent and those who are not active there,” said Michael Lalor, director of Ernst & Young’s Africa business centre. “There is this stubborn perception gap that continues to exist. When we ask people questions about Africa’s relative attractiveness, those doing business in Africa rate it as the second most attractive investment destination in the world, only marginally after Asia. Those not doing business there rate it as the last and least attractive, by a long shot.”
In spite of these negative stereotypes, Mr Lalor maintained that marked improvements to governance and macroeconomic management have enabled the continent to record a large uptick in FDI. According to the report, capital flows into Africa increased by 5.5% in 2012, and as a proportion of global flows, greenfield FDI projects grew from 5.4% to 5.6% year on year.
Ernst & Young’s latest Africa Attractiveness Survey, which partially derives its FDI data from fDi Magazine’s greenfield investment database, fDi Markets, asserts that investors must focus on the continent’s reforms, rather than factors such as corruption and bribery, which still colour investor perceptions of Africa. All but one of the 46 sub-Saharan African economies that the World Bank tracks in its Doing Business reports have improved their regulatory environments. Of the 50 economies globally which made the greatest business reforms, 19 were from Africa, with Rwanda having made the greatest regulatory improvements.
“There is a large group of people, particularly in the developed markets, whose perception of Africa is stuck in a time space that is 20 years out of date,” said Mr Lalor. “The emphasis needs to shift. For example, 33 African economies rank ahead of Russia in the latest transparency international rankings, and 16 African economies rank ahead of India on the World Bank’s Ease of Doing Business index. When I make this point to some people, they are surprised, if not disbelieving.”
Although it will take a while for the continent to breakthrough the perception barriers, Mr Lalor maintains that FDI will become diversified, and investors will move away from Africa’s conventional hubs such as South Africa, Morocco and Egypt, to locations further afield. These three countries accounted for 37% of new FDI projects in 2012, and Nigeria, Angola, Tunisia and Algeria for 23%, but the pattern of FDI will shift. Kenya, Tanzania, Mauritius and Mozambique have been highlighted as rising performers that will draw a larger number of foreign investors in coming years.