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FDI Flows in Africa Fell by 28% in H1 2020

Foreign Direct Investment (FDI) flows in Africa dropped by 28% over the first six months of 2020, a UNCTAD report issued on October 27 showed. The situation is, according to the document, mainly due to the Covid-19 pandemic which disrupted the global economic activity.

Between January and June 2020, FDI flows on the continent reached $16 billion compared to $23 billion over the same period in 2019. Greenfield investment projects dropped by 66% and cross-border mergers by 44%.

While Africa as a whole remains less affected than most developed countries, the report highlights some disparities between countries on the continent. Countries most affected by this decline in FDI are those dependent on their raw materials for income. Egypt alone recorded a 57% decline in FDI while Nigeria posted a 29% decline.

Sub-Saharan Africa was less affected compared to North Africa. According to estimates, the Southern region of the Sahara recorded a 21% drop in its FDI flow, which reached $12 billion, while in the Maghreb, FDI flow dropped by 44% to $3.8 billion.

These figures come at a time when recent forecasts made by international institutions indicate that Africa will suffer the full impact of the pandemic. In October, the World Bank indicated in a report that sub-Saharan Africa would experience a historic recession of -3.3% in 2020, after years of rising growth. Nevertheless, some countries such as Côte d’Ivoire, Ethiopia, or Kenya should maintain positive growth.

Similarly, UNCTAD indicates that some African countries, unlike their peers, recorded an increase in FDI flows in the first half of this year. For example, Morocco’s FDI flow increased by 6% to $800 million thanks to “a relatively more diversified investment profile.”

South Africa, meanwhile, recorded a 24% growth in FDI, thanks to intra-firm transfers from foreign companies to their subsidiaries in the country rather than Greenfield investment projects.

Overall, global FDI flows fell by 49%, with the largest declines in Europe and the USA.

(Ecofin Agency)

About Babajide Iletogun

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