Foreign direct investment to Africa is set to rise by more than 10 percent in 2013, approaching its 2008 record high, with the fast-growing sub-Saharan region likely to receive the majority of inflows, a report said on Monday.
But investment inflows are set to remain narrowly focused on the major economies of South Africa, Nigeria, Democratic Republic of Congo, Egypt and Morocco, with the rest of the continent still heavily dependent on aid.
After three years of decline, FDI is forecast to reach $56.6 billion this year from $49.7 billion last year, according to the African Development Bank’s (AfDB) annual African Economic Outlook. In 2008, flows totaled $57.8 billion.
Although FDI to Libya and Egypt increased in 2012, continued political unrest in North Africa means sub-Saharan countries are likely to receive around 80 percent of the investment in 2013, the report said.
“Almost the entire projected increase in FDI to Africa is expected to be in sub-Saharan Africa, while in 2012 northern Africa absorbed half the increase in FDI,” it said.
“This confirms sub-Saharan Africa’s economic dynamism as well as the hesitance of investors over political developments in North Africa, particularly in Egypt.”
The AfDB said Africa’s economy would grow 4.8 percent in 2013 and 5.3 percent in 2014, led by West African commodity exporters such as Nigeria, Ghana and Ivory Coast.
But it said a weaker global economy and a prolonged crisis in the euro zone could reduce commodity export earnings, overseas aid, migrant remittances and FDI inflows.
“Africa’s economic prospects depend on global and domestic factors, which are highly uncertain,” the report said. “According to estimates, a 1 percentage point decline of GDP in OECD member countries causes African GDP to decline by about 0.5 percent and Africa’s export earnings by about 10 percent.”
Total external financial flows to Africa, including FDI, portfolio investment, official development assistance (ODA) and remittances are projected to reach $203.9 billion in 2013, above a record high of $186.3 billion in 2012.
Portfolio investment is forecast to increase 30 percent to $26.2 billion in 2013, eclipsing the pre-crisis peak of $22.5 billion in 2006. South Africa and Nigeria accounted for 95 percent of African portfolio flows in 2012, the report said.
Remittances, which last year overtook FDI and ODA as the largest external source of finance to Africa for the first time, are expected to increase to increase to $64 billion in 2013 from $60.4 billion in 2012.
But as the euro zone crisis hurts the employment prospects of the African diaspora in Europe, remittances to the continent could grow at a slower pace, the AfDB said.
Africa’s ability to attract higher financial flows after the 2008 crisis reflects improved macroeconomic policies but hides disparities between countries, the report noted.
“Five countries account for more than 50 percent of total external flows: Nigeria, South Africa, Egypt, Morocco and DRC,” it said. “In contrast, half of African countries rely on aid as the largest external source of finance for development needs.”