SANDILE HLOPHE: Africa FDI in 2024 — a focus on renewable energy, job creation

In the dynamic world of global economics, foreign direct investment (FDI) serves as a critical barometer for gauging the health and direction of industrial sectors. 

In 2023-24 renewable energy not only topped the charts as the sector with the highest FDI score but also demonstrated significant capital investment, underscoring its pivotal role in the global shift towards sustainable development. This according to EY’s 12th annual Africa Attractiveness Report, which provides an in-depth analysis into FDI and economic progress in Africa.

The top sectors for FDI in 2023, according to FDI Markets, reveal a landscape where strategic investments are aligning with global sustainability and economic resilience goals:

• Renewable energy. This sector led with a FDI score of 57.6, driven by capital investment of $82.7bn across 73 projects and created 17,000 jobs. This is indicative of a continued global commitment to transitioning away from fossil fuels.
• Business services. With an FDI score of 43.2, this sector saw 119 projects, creating 7,700 jobs with capital investment of $2.8bn. The stability in this sector suggests robust demand for service-orientated FDI.
• Software & IT services. Ranking third with a score of 40.2, this sector created more than 20,000 jobs through 98 projects, reflecting the digital transformation sweeping across industries.
• Transportation & warehousing. This sector, with an FDI score of 25, involved capital investments of $7.1bn. Despite fewer projects (60), it managed significant job creation, indicating its essential role in logistics and infrastructure.
• Financial services. With a capital investment of $1.4bn, this sector scored 23.9, supported by 66 projects, showing resilience in its attractiveness for foreign investors.

Sectors such as metals, food & beverages, textiles, chemicals and electronic components also made notable entries into the top 10, highlighting a diverse investment portfolio influenced by both economic necessity and strategic industry shifts.

The food & beverages sector led in job creation with a 273% increase from the previous year, followed by textiles at 200%. This indicates a strong rebound or expansion in these sectors, driven by shifts in consumer behaviour or economic recovery efforts post-global disruptions. 

In contrast, the renewable energy sector, while leading in investment, saw a decline in job creation, which might reflect the sector’s transition towards more capital-intensive projects that do not proportionally increase employment.

However, over five years the software & IT services and renewable energy sectors have shown explosive job growth, highlighting long-term trends towards digitalisation and green energy.

GEOGRAPHICAL DISTRIBUTION

Egypt stood out as a significant beneficiary of FDI, especially in sectors such as renewable energy and transportation & warehousing, underscoring its emerging role as a hub in Africa for diverse economic activities. Countries such as SA, Morocco, Nigeria and Kenya also featured prominently, reflecting varied sectorial strengths across the continent. 

Renewable energy’s dominance in capital investment is particularly striking, with more than 50% of the total investment in Africa attributed to this sector despite a 30% drop from 2022. This trend points to a focused effort on sustainable energy solutions, even as traditional energy sectors such as coal, oil and gas saw declines.

While the renewable energy and food & beverages sectors excel in total job numbers, sectors such as metals & automotive components lead in jobs per project, suggesting different scales of investment and operational models. Interestingly, sectors such as software & IT services, while high in total job creation, rank lower in jobs per project, indicating a larger number of smaller projects or a different employment intensity.

SA, a regional economic powerhouse, has historically been a major recipient of FDI. Its robust infrastructure, skilled workforce and diversified economy have made it an attractive destination for foreign investors. Challenges such as load-shedding, municipal leadership instability and social unrest have affected its FDI inflows over the past few years, but things are looking up under the government of national unity and positive economic sentiment that is setting in as the country gears up to host the Group of 20 over the coming year. 

To maximise the benefits of FDI, African countries should:

• Implement investor friendly policies. Streamlining regulatory processes, reducing bureaucratic hurdles and offering tax incentives can attract more FDI. 
• Develop infrastructure. Adequate infrastructure, including energy, transportation and digital connectivity, is essential to support FDI projects.
• Build human capital. Investing in education and skills development can equip the workforce to meet the demands of FDI-driven industries.
• Foster a conducive business environment. A stable political leadership environment, strong governance and effective law enforcement are crucial for attracting and retaining FDI. 
• Prioritise sustainable development. Encouraging FDI projects that align with environmental, social & governance principles can ensure long-term sustainability.

By embracing these strategies, Africa can position itself as a global investment powerhouse, driving economic growth, creating jobs and reducing poverty.

• Hlophe is EY partner and Africa government & infrastructure industry leader.