30 October 2007

Africa's Commodities Pull Foreign Direct Investment

World Investment Report for 2006 says high commodity prices propelled inflows from 17 to 31 billion dollars.

Foreign Direct Investment (FDI) inflows as a percentage of Africa's gross fixed capital formation increased to 19 per cent in 2005, the 2006 World Investment Report has stated. The 340 page-document published annually by the United Nations Conference on Trade and Development (UNCTAD) sizes up the performance of the continent's commodities underscoring the fact the important role the sector can play in pulling foreign investors into the region.

"A large proportion of the 2005 inflows were concentrated in mining, and in particular, oil and gas", the reported stated. However, low skill levels, fragmented markets and lack of diversification inhibited Foreign Direct Investment in the manufacturing sector, the report said. Countries such as the United Kingdom, United States, South Africa, China, Brazil and India witnessed an increase investment in their services.

FDI in Africa has traditionally been geographically and industrially concentrated, and 2005 was no exception. Five countries (South Africa, Egypt, Nigeria, Morocco and Sudan) in descending order of value of FID accounted for 66 % of the region's inflows. South Africa registered the largest inflows with a sharp increase to 6.4 billion dollars from only 0.8 billion in 2004 or about 21 % of the region's total. The report attributes the performance to the acquisition of Amalgamated Bank of South Africa (ABSA) by Barclays Bank (United Kingdom) for 5 billion dollars.

Among other leading recipients in 2005 were Chad, Equatorial Guinea and Sudan, along with Algeria, DR of Congo and Tunisia. Many of them are oil and gas producing countries. In all, FDI inflows increased in 34 African countries in 2005 and declined in 19. According to the report, more African countries adopted a more favourable regulatory framework and policies at the national, bilateral and regional levels. Inflows into the region were expected to increase sharply the year after against the backdrop of a high volume of new project commitment and renewed merger and acquisition activity.

That notwithstanding, the region continues to exhibit weaknesses that constrain its ability to attract quality FDI of the kind that would generate broader beneficial effects in its economies. Meantime, total FDI inflows into Africa in the commodity sector surged to reach 31 billion dollars in 2005, representing a historic growth rate of 78 %. This, it said, was higher than the global FDI growth rate of 29 % and that of developing economies as a whole.

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