21 May 2014

Africa: FDIS Into Africa Projected to Hit U.S. $80 Billion This Year

Photo: African Development Bank Group
Maximizing Africa’s Blue Economies, AM2014, Kigali.

External financial inflows as well as tax revenues and regional integration are tipped to remain the key drivers of Africa's development and growth prospects, according to Africa's economic outlook 2014.

The report released by the African Development Bank at the ongoing 49th AfDB Annual Meetings in Kigali on Monday, indicates that foreign direct investments (FDIs) have fully recovered from the effects of the economic crisis and are projected to reach $80b this year.

Over the past two years, FDIs to Africa were $50bn and $56 billion for 2012 and 2013 respectively.

The manufacturing and service sectors will continue attracting a big share of the FDIs into Africa and could fetch up to $67.1b this year, the report indicated.

According to the report, financial inflows have quadrupled since 2000 and are projected to reach over $200b this year.

The report also indicates that Africa's exports grew faster than in any other region in the world, driven by strong commodity prices and attractive trade policies and regional integration.

Intra-African trade with value-added manufacturing grew faster than exports to the rest of the world.

However, Africa accounts for just 3.5 per cent of world exports, and this has remained low over the years.

Speaking after the launch of the report, Valentine Rugwabiza, the CEO of Rwanda Development Board, said Africa can further improve its trade by removing bottlenecks to trade and strengthening industrialisation.

"We are already seeing the impact regional integration is having in terms of doing business across the region. There is no doubt that the cost and time of conducting business has immensely reduced, especially along the Northern Corridor," she said, referring to recent commitments by tripartite countries; Kenya, Uganda and Rwanda to ease movement of goods from Mombasa port to the hinterland.

Mario Pezzini, the director of the OECD Development Centre, said attracting FDIs in the value chain requires targeted trade reforms and policies, efficient trade infrastructure and incentives to support value-added technology.

"The more the economy is integrated in a global value chain, the higher the productivity. This, however, must be carried out at both regional and national levels," Pezzin said.

Today, 80 per cent of global trade is linked to multinational corporations, while 60 per cent of global trade in goods is in form of intermediate products and on average foreign value added makes up 25 per cent.

The heralding of global value chains as the new model of global trade opens new opportunities for African firms, but demands a change in the way economic policies are designed and implemented, experts say.

"Successful integration and upgrading in value chains call for openness and product-specific, sometimes firm-specific, strategies," Pezzin noted.

However, African states have not participated fully in this import growth, according to Pascal Lamy, the former director general of the World Trade Organisation.

Lamy said there was need for an enabling trade environment to help African suppliers to scale-up involvement in services value chain.

"Regional bodies have launched important initiatives to boost industrialisation and investment in regional infrastructure, but these need to be strengthened by global value chains and Africa's industrialisation agenda," Lamy said.

According to the report, in 2013, Africa maintained an average growth rate of about 4 per cent, against the 3 per cent average growth of the economy globally.

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