The foreign direct investment (FDI) to the african continent are declining. Under the effect of the double shock of the pandemic of the sars coronavirus and the weakness in commodity prices, oil in particular, the FDI flows to the continent are expected to shrink between 25 % and 40 %, according to the report on investment in the world in 2020, published by the Unctad (united Nations Conference for trade and development).
A global trend of decline
This trend does not only concern Africa. This year for the whole of the country, it will probably be a fall of 40 % in FDI flows, which will continue in 2021, with a decrease of 5 % to 10 %, say Unctad economists. It will have to wait for 2022 to hope for a rebound. All regions of the world are affected. Foreign direct investment, which had been $ 1 540 billion in 2019, will fall under the threshold of 1 000 billion dollars in 2020, for the first time since 2005. The 5 000 first multinational companies, which represent the major part of the IDE, anticipate reductions in profits of the order of 40 per cent on average to 2020. Worse, some affected areas are anticipating huge losses. In fact, the decline in profits will hurt reinvested earnings, which represent on average more than 50 % of FDI, according to Unctad. “Although all industries are affected, several service industries, including aviation, hospitality, tourism and recreation, are adversely affected, a trend that should persist for some time,” said James Zhan, director of investment and enterprise of Unctad. What harm efforts to promote economic diversification and industrialization in Africa. The crisis of the Covid-19 came at a time where the IDE was already in withdrawal, the continent recorded a decline of 10 % of the input stream in 2019 to $ 45 billion.
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Hope for recovery
On the medium and long term, Unctad economists are more confident and expect a return on their investment, in particular, the fact that the major economies of the world, in their relations with the african countries tend to prioritise investment in the infrastructure, resources, but also the industrial development. “The investments from these countries, which enjoy varying degrees of political support, although they are affected by the joint impact of the Covid-19, and to a certain extent by the low price of raw materials may be relatively more resilient “, says the report. A second factor could also play in favour of a return of the investment : the strengthening of regional integration with the free trade area of the continental african (Zleca). After years of debate, the Zleca was officially launched in July 2019, with a start scheduled for 2020. In the short term, it is essential to limit the magnitude of the slowdown of the investments and to limit the economic and human costs of the pandemic. In the longer term, the diversification of investment flows to Africa and their use for structural transformation remains a key objective.
The IDE dispatched region-by-region
To the North Africa, FDI inflows have decreased by 11 % to reach $ 14 billion by 2019. Only Egypt, which has remained the largest recipient of FDI in Africa, has registered an increase of 11 % to $ 9 billion. On the other hand, the flow of FDI inflows to Morocco declined 55 % to $ 1.6 billion in 2019. The lowest amount of the past six years.
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This is not Africa only which is concerned by the decline in foreign direct investment. It is a global phenomenon. © JESPER KLAUSEN / SCIENCE PHOTO L / JKU / Science Photo Library via AFP
in sub-saharan Africa, after a significant increase by 2018, has seen a contraction of 10 % of the FDI flows in 2019 to reach $ 32 billion. “The southern Africa was the only sub-region to have received capital inflows were higher in 2019 (an increase of 22 % to $ 4.4 billion), but only due to the slowdown of the net divestiture of Angola,” the report says. The capital inflows into South Africa have decreased by 15 % to reach $ 4.6 billion by 2019, despite making key investments in mining, manufacturing (automobiles, consumer goods) and services (finance and banking).
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The investment into West Africa fell by 21% to reach 11 billion in 2019. This evolution can be explained in large part by the sharp decline in investment in Nigeria and Ghana. In contrast, FDI to the Ivory Coast and to Senegal have increased respectively by 63% and 16% to reach all two billion of dollars.
In East Africa, FDI flows have also decreased 9 % to $ 7.8 billion. In Ethiopia, the political tensions were largely responsible for the contraction of nearly a quarter of capital inflows at $ 2.5 billion. Similarly, in Kenya, FDI fell 18% to $ 1.3 billion, in spite of several new projects in the fields of information technology and health care.
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A new chapter
This year, the report includes a new chapter on investments in the sectors of sustainable development Goals (SDGS) for 2030, set by the united Nations. The analysis shows that the international flow of private sector to four of the ten key areas of the SDGS have not increased substantially since the adoption of the millennium development goals by 2015. The promotion of investment in the infrastructure, renewable energy, water and sanitation, food and agriculture, and health care is necessary. This chapter deploys an action plan to achieve it.
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” as such, the report on investment in the world this year is a must-read for policy makers and an important tool for the international development community. I commend its information and analysis to a wide global audience, ” said Antonio Guterres, the secretary general of the united Nations.
” The crisis could be a catalyst for a process of structural transformation of the international production this decade, and an opportunity for increased durability, but this will depend on the ability to take advantage of the new industrial revolution and to overcome the economic nationalism growing “, he warns also.
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