Foreign investment in Africa set to reach record

22 May 2014

Financial Times

Africa will receive its highest flow of foreign investment this year as the continent's growth accelerates towards levels not seen since the 2008-09 crisis, according to the annual economic review of the region published on Monday.

The African Development Bank, the UN and the OECD painted a rosy outlook for the continent in their flagship "African Economic Outlook" report, saying that Africa was showing "resilience to regional and global headwinds" and attracting investors. 

"Foreign investment - direct and portfolio - has now fully recovered from the effects of the [global financial] crisis," the report stated, with flows expected to rise to a record of $84.3bn in 2014, surpassing the previous peak set in 2012.
Portfolio flows, which include equity and bond investments, are expected to rise to nearly $24.1bn this year, surpassing the peak set in 2006. As recently as in 2001-03, Africa was registering negative portfolio flows as investors withdrew money.

Sovereign wealth funds such as Temasek of Singapore, large institutional investors including Goldman Sachs and multinationals like Nestlé and Unilever are pouring money into the continent, attracted by a virtuous circle of strong economic growth and improved governance that many have enthusiastically called "Africa rising".

The Carlyle Group recently said it had closed its maiden private equity fund for Africa at $700m - 40 per cent above target - highlighting the growing appeal of investing on the continent. And Temasek, the state-backed fund of Singapore, announced a maiden investment in Nigeria, the continent's largest economy.

"If the current pace of growth is sustained, foreign direct investment and portfolio investment could soon constitute Africa's main source of financial flows," the report said. Currently, remittances and official aid, both under pressure due to slow economic growth in Europe, are the largest sources of financial flows in the region.

However, the landscape described by the "African Economic Outlook" is very different to that of the International Monetary Fund, which has warned that the "Africa rising" theme was starting to wear thin due to rising fiscal deficits in some countries. Some foreign investors have also shown caution, worried about growing insecurity in two of the continent's main economic engines, Nigeria and Kenya. 

The bank's report, released on the eve of the AfDB annual meeting in Kigali, the capital of Rwanda, forecast that the continent's economic growth will accelerate this year to 4.8 per cent, from 3.9 per cent in 2013. Next year, it will increase to 5-6 per cent, "thus to levels last seen before the onset of the 2009 global recession".

The sub-Saharan African region, which excludes Morocco, Algeria, Tunisia, Libya and Egypt, is expected to grow 5.8 per cent this year, from 5.0 per cent in 2013, boosted by foreign investment, consumption and strong oil revenues.

"Africa's medium-term growth prospects have improved, on the back of broader political and social stability at home and recovering economic conditions abroad." But the report sounded a note of caution. "Important challenges remain," it said, mentioning rising income inequality and security breakdowns in countries ranging from the Central African Republic to South Sud an and from Libya to Somalia.

Donald Kaberuka, AfDB president, said that in spite of the progress, Africa needed to do far more to translate strong economic growth into a reduction of inequality and poverty. "You cannot eat GDP," he said in a direct message to finance ministers to avoid complacency.

Original article by Javier Blas

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