Africa's 2021 FDI up 147 perecent smaller nations not left out

Nairobi. Against the backdrop of a 147 percent increase in foreign direct investments into Africa in 2021, smaller African nations are racing to develop business-friendly policies and economic reforms to bolster their investor attractiveness.

Just as the UN released a report showing that foreign direct investment (FDI) into Africa grew by 147 percent, so another report shows that smaller African economies, too, have begun flaunting their colours, particularly in the form of economic reforms and business-friendly policies as they vie for a greater share of inbound investment.

A new global index, shows seven low and lower-middle-income countries in the continent are among 10 with the most improved investment climates in the world - climbing the index by as much as 21 positions.

“The 10 countries that gained the most positions are all low-income and lower-middle-income countries from sub-Saharan Africa and Latin America,” according to the index.

Among the seven African countries, Burkina Faso, improved the most in the rankings, from position 143 in 2021 to its current 122, according to Milken Institute’s Global Opportunity Index 2022: White Paper.

Burkina Faso had its best scores in Institutional Frameworks – supporting business activities (109), conforming to international standards and policy (112) and positive economic fundamentals including workforce talent and potential for future innovation and development.

Malawi (103), Lesotho (105), Angola (125) and Chad (126) –all improved their ranks, climbing 19 positions in 2022.

Angola and Burkina Faso defied the pandemic to record improvements in the economic performance metric by 0.47 and 0.34 respectively.

It was not clear what impact a recent coup in Burkina Faso might have on the index rankings.

“Of all the subcategories in the Index, Economic Performance is the most suited to reflect the immediate effects of the pandemic, as it includes measures of unemployment, interest rates, and GDP growth,” says the authors of the Index.

Both Mali (123) and Mauritania (124) also showed their attractiveness to investors, rising 16 positions in the global ranking.

Mauritius (36), South Africa (52) and Rwanda (72) remained the most attractive investments destinations in Africa.

Rwanda also recorded the biggest improvement in the business perception element of the index, rising by 20 positions to 52, thanks to a significant improvement in the ease of solving business disputes.

South Africa made a significant jump in economic fundamentals - the measure of macroeconomic outlook, workforce talent and potential for future innovation and development.

The United Nations Conference on Trade and Development (UNCTAD) investment trends monitor report shows foreign direct investments into Africa grew by 147 percent to $97 billion in 2021, from $39 billion in 2020.

The significant growth was fuelled by a $46 billion share swap between South Africa’s Naspers and its Dutch-listed investment unit Prosus that saw FDI into the South African country rise from $3 billion to $41 billion.

Global FDI flows showed a strong rebound in 2021, up 77 percent to an estimated $1.65 trillion, from $929 billion in 2020, surpassing their pre-Covid-19 level, according to UNCTAD’s Investment Trends Monitor published in January this year.

“Recovery of investment flows to developing countries is encouraging, but stagnation of new investment in least developed countries in industries important for productive capacities, and key Sustainable Development Goals (SDG) sectors – such as electricity, food or health – is a major cause for concern,” said UNCTAD Secretary-General Rebeca Grynspan.

Biggest rise in developed economies

Developed economies saw the biggest rise by far, with FDI reaching an estimated $777 billion in 2021 – three times the exceptionally low level in 2020, the report shows.

In Europe, more than 80 percent of the increase in flows was due to large swings in conduit economies. Inflows in the United States more than doubled, with the increase entirely accounted for by a surge in cross-border mergers and acquisitions (M&As).

FDI flows in developing economies increased by 30 percent to nearly $870 billion, with a growth acceleration in East and South-East Asia (+20 percent), a recovery to near pre-pandemic levels in Latin America and the Caribbean, and an uptick in West Asia.

Inflows in Africa also rose. Most recipients across the continent saw a moderate rise in FDI; the total for the region more than doubled, inflated by a single intra-firm financial transaction in South Africa in the second half of 2021.

Of the total increase in global FDI flows in 2021 ($718 billion), more than $500 billion, or almost three quarters, was recorded in developed economies.

Developing economies, especially least developed countries (LDCs), saw more modest recovery growth.

The outlook for global FDI in 2022 is positive, according to the report.

The 2021 rebound growth rate is unlikely to be repeated.

The pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty.

Other important risks, including labour and supply chain bottlenecks, energy prices and inflationary pressures will also affect results.