FDI flows to SA remain steady despite policy uncertainty
‘The country’s efforts to implement economic reforms have resulted in strengthened investor confidence’
Foreign direct investment (FDI) in SA remained steady in 2019 despite policy uncertainty in the country that threatens to hamper growth, the UN Conference of Trade and Development (Unctad) shows.
In a global report, Unctad said SA consolidated its recent recovery with inflows remaining almost constant at a little more than R72.35bn ($5bn).
After several years of low-level inflows, investment flows in SA more than doubled to $5.3bn in 2018. This was largely attributed to intra-company transfers by established investors. For 2019, the “Global Investment Trends Monitor” issued by Unctad said that in addition to intra-company transfers by existing investors, investment to SA was led by mergers & acquisition deals in business services and petroleum refining.
Trade and industry minister Ebrahim Patel told investors at the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday that the government hoped the performance of the past two years marked the start of a “new normal” of greater FDI flows into SA.
In 2018, President Cyril Ramaphosa set a target to lure investments of $100bn by 2023 in an attempt to reignite economic growth, which has been falling far short of the 5.4% annual target set in the National Development Plan, the government’s blueprint for eliminating poverty and reducing inequality.
The report is set to boost his standing coming as it does at a time when most regions are struggling to attract FDI and when ratings agencies are threatening to downgrade SA to junk status.
The global investment report notes that Africa is bucking the global FDI slump. FDI flows to Africa amounted to an estimated $49bn, an increase of 3%.
Global FDI flows remained flat in 2019, at an estimated $1.39- trillion, down 1% from a revised $1.41-trillion in 2018. Flows declined in Europe and developing Asia, remained unchanged in North America and increased in Africa, Latin America and the Caribbean.
According to the report, persistent global economic uncertainty and the slow pace of reforms continue to hamper investment in the continent. Egypt remained the largest FDI recipient in Africa with a 5% increase in inflows to $8.5bn.
“The country’s efforts to implement economic reforms have resulted in strengthened investor confidence. While FDI to the country was still driven by the oil and gas sector, major investments in the non-oil economy emerged, notably in telecommunications, real estate and tourism,” the report says.
In contrast, FDI to Southern Africa increased 37% to $5.5bn, mainly due to the slowdown in net divestment from Angola. FDI flows to East Africa remained steady, totalling $8.8bn.
Flows to Ethiopia, Africa’s fastest-growing economy, slowed down by a quarter to $2.5bn. China was the largest investor in Ethiopia in 2019, accounting for 60% of newly approved FDI projects. Inflows to Uganda increased by almost 50% to $2bn due to the continuation of the development of major oilfields and an international oil pipeline.
Flows to West Africa were up 17% to an estimated $11bn as investment surged in Nigeria by 71% to $3.4bn. FDI to the continent’s largest economy was buoyed by resource-seeking inflows in the oil and gas sector.
However, according to the UN report, the development of a $600m steel plant in Nigeria’s Kaduna state offers some evidence of investment diversification, a long-standing policy objective.
Meanwhile FDI to Central Africa rose 6% to $9.3bn, with the resource-orientated profile of investment persisting.
Overall, developing economies continue to absorb more than half of global FDI flows and half of the top 10 largest recipients of FDI fall in this category. The US remained the largest recipient of FDI, attracting $251bn in inflows, followed by China with $140bn and Singapore with $110bn.
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