Sub-Saharan Africa will remain one of the world’s most attractive investment destinations as continuing GDP growth of more than 7%, particularly in low income countries such as Mozambique, means total inward FDI will increase to $80bn this year, Christine Lagarde, the managing director of the International Monetary Fund (IMF) said in a conference.
Speaking at an IMF Africa conference, which was held in Maputo, the capital of Mozambique at the end of May, Ms Lagarde maintained that with the world’s youngest workforce, and some of the most innovative technological breakthroughs, including the M-Pesa mobile payment service which was developed by the Kenya-based Safaricom, Africa as a whole has increased its appeal as an FDI destination.
The fDi Report 2014, which is fDi Intelligence’s annual greenfield investment review, also found that capital investment into greenfield sites located in Africa increased by 10.8% in the past year and greenfield FDI into Africa increased from $47bn in 2012 to $52bn in 2013.
While countries such as Uganda, Botswana and Kenya were highlighted by Ms Lagarde as key performers, thanks to improvements in their infrastructure, successful mineral discoveries in other parts of the region, including the development of the Moatize coal mine in the north of Mozambique, were also highlighted as key draws for foreign investors.
“Africa is home to more than 30% of the world’s mineral reserves, and if this is leveraged with the proper management of African countries’ infrastructure needs, this can close some of the infrastructure gaps in the region,” said Ms Lagarde. The fDi Report 2014 ranked Mozambique as the fifth most popular FDI destination in the Middle East and Africa, accounting for 6% of FDI in the region. Nigeria, South Africa, Ethiopia, Algeria and Kenya were also ranked among the top 10 investment destinations in the region.
Ms Lagarde maintained, however, that governmental failures to build sufficiently transparent legal and economic frameworks, and continued mismanagement of public resources, means poverty and inequality across Africa still remains “unacceptably high”. Although Africa is predicted by 2040 to have the world’s youngest labour force – indeed the IMF predicts that more than one billion Africans will be of working age – underinvestment in education and human capital development could prevent it from leveraging this demographic dividend.
“Economic growth has not lifted all boats and poverty remains stuck at unacceptably high levels,” cautioned Ms Lagarde. “A lot of the revenue that has been received from natural resources has not been applied to closing Africa’s infrastructure gaps. Accepting transparency and increasing institutional accountability is critical.”
Although natural resource projects that have come onstream across several African countries, including in Ghana, Sierra Leone and Mozambique, have strengthened these economies, Ms Lagarde warned that excessive dependence on high commodity prices in international markets could place these countries at a high risk of external economic shocks.
“Tightening external conditions in advanced economies and declining prices for some commodities is a near term worry,” said Ms Lagarde. “Planning is needed. Energy, roads and technological infrastructure needs to be built. Also, there needs to be a cultural shift towards girls’ and women’s education. Underinvestment into female education costs Africa $90bn, and, today, most women are over-represented in the informal sector. African governments should invest in women’s education, as this is one of the largest constraints to its development.”