FDI flow to Africa declines by 3% to $53 billion in 2023: UNCTAD

According to the latest World Investment Report released by UN Trade and Development (UNCTAD) on June 20, foreign direct investment (FDI) flows to Africa decreased by 3% to $53 billion in 2023. This decline was primarily driven by Egypt and South Africa, which are the two largest recipient economies in the region.

In addition, the estimated value of international project finance deals in African nations dropped by 50% to $64 billion during the year. This follows a 20% decrease in 2022.

Despite these declines, Africa managed to attract a growing share of global greenfield megaprojects, with six of them valued at over $5 billion. The top project on the list is a green hydrogen initiative in Mauritania, a least developed country in Northwest Africa. This project is expected to bring in $34 billion in investment, which is several times greater than the nation's GDP.

Furthermore, Africa received over $10 billion in project finance for wind and solar electricity production, with the largest projects located in Egypt, South Africa, and Zimbabwe.

Foreign investments were also driven by value chains for electric vehicles. One notable deal was the establishment of a $6.4 billion electric vehicle battery manufacturing facility in Morocco.

The main economies investing in Africa, based on FDI stock, are the Kingdom of the Netherlands, France, the United States, the United Kingdom, and China.

In North Africa, foreign investments decreased by 12%. Egypt experienced a decline in mergers and acquisitions compared to the previous year's highs.

Morocco also saw a decrease in FDI inflows but performed well in attracting greenfield projects.

FDI inflows to West Africa experienced a slight decrease of 1%, showing varied outcomes among countries. The significant impact of the $34 billion green hydrogen project in Mauritania was evident in the value of greenfield investments. Even without this exceptional case, greenfield project values tripled, while the number of projects remained steady.

In Central Africa, FDI saw a decline of 17%. Despite a notable increase of 56% in the number of greenfield projects and a 119% rise in their value, the region faced challenges due to the decrease in international project finance deals.

East Africa witnessed a 3% drop in FDI inflows, primarily driven by an 11% decrease in Ethiopia. However, there was a positive trend with greenfield projects and international project finance deals increasing by over 30%, indicating promising opportunities ahead.

Southern Africa experienced fluctuations influenced by Angola. Inflows to South Africa decreased by 43% despite heightened mergers and acquisitions activity.

Compared to 2018, FDI inflows expanded across all major regional groupings, notably within the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC).

Thoughts: In order to counteract the decrease in foreign direct investment (FDI), African nations must tackle the various reasons behind it through the enhancement of political stability, infrastructure development, regulatory framework streamlining, corruption eradication, and the promotion of a more diversified and resilient economic atmosphere.?

Additionally, it is imperative to make endeavors towards enhancing the global perception of Africa as a promising investment hub; after all, no one can tell the story of Africa better than Africans. It is high time a noticeable change is witnessed across board, starting from the leadership down to the led.

The time to start arresting the decline is NOW.

Credit: UNCTAD