East Africa: EAC FDI Increase Despite Global Uncertainties

7 November 2023
Tanzania Daily News (Dar es Salaam)
By Henry Lyimo

The East African Community (EAC), a seven-nation bloc comprises some of the most highly populated and resource-rich countries in Africa.

Its combined GDP of US$ 305.3 billion (2021) which is expected to hit $346.17 billion in 2023, according to the IMF's latest forecast, population of more than 300 million (according to some estimates) and its strategic geographical position make it an attractive investment destination.

Abundant resources in the region such as proven oil deposits in Uganda, liquefied natural gas (LNG) in Tanzania, copper in DR Congo, cobalt and nickel deposits in DR Congo and Tanzania, make the bloc on the radar of investors.

The list of minerals on offer within the EAC is vast. In addition to LNG, copper, cobalt and nickel, the region is also rich in diamonds, coal, gold, iron ore, oil, titanium and zirconium.

These give the region reasons for optimism for strong economic growth prospects which will make it even more attractive for investments.

It was not surprising that the East African region posted increasing flows of investments in 2022 despite the challenging global economic situation worsened by the Ukraine war and rising inflation.

The World Investment Report 2023 showed the region posted a 9 per cent increase of FDI inflows to 3.8 billion US dollars.

FDI inflows rose also in the Southern African Development Community (quadrupling, to 10 billion US dollars), and the West African Economic and Monetary Union (doubling, to 5.2 billion US dollars).

The Democratic Republic of Congo remains the leading FDI destination in the region despite posting a drop in investment inflows of 1.85 billion US dollars in 2022, a one per cent decrease from the 1.87 billion US dollars in 2021.

FDI inflows to Uganda grew by 39 per cent to 1.5 billion US dollars in 2022 from 1.1 billion US dollars in 2021 to make it the second most attractive investment destination in the region followed by Tanzania increased by 8 per cent to $1.1 billion US dollars.

Burundi has the lowest FDI inflows in the EAC region from 2016. Last year, Burundi attracted 12.88 million US dollars in FDI, a slight rise from the 9.93 million US dollars recorded in 2021.

Below is a trend of FDI flow to EAC member states from 2001 to 2022, according to World Investment Report, 2023.

DR Congo

A leading FDI destination in the EAC region from 2018 despite posting a drop in investment inflows to 1.85 billion US dollars in 2022, a one per cent decrease from the 1.87 billion US dollars in 2021.

FDI inflows into the mining sector supported the growth of FDI stock as cobalt prices rose with rising demand for its use in smartphones and electric car batteries - the country is the world's leading producer of cobalt and Africa's top copper miner.

To date, the mining sector is the one that attracts the most FDI, followed by telecommunications.

South Africa, Belgium and China are the country's main investors.

Uganda

FDI inflows to Uganda grew by 39 per cent to 1.5 billion US dollars in 2022 from 1.1 billion US dollars in 2021 to make it the second most attractive investment destination in the region, according to UNCTAD's 2023 World Investment Report.

FDI in Uganda had increased by 30.6 per cent from 874 million US dollars in 2020 to 1.1 billion US dollars in 2021.

The figures are expected to rise further in 2023 with the approval of the 5.0 billion US dollars East African Crude Oil Pipeline project in early 2023, which will lead to the construction of a 1,400km pipeline from Uganda to the seaport of Tanga in Tanzania.

Tanzania

Tanzania is one of the most preferred destinations for foreign investment in Africa (it counts among the 10 biggest recipients of FDI in Africa).

The flow of foreign direct investment to Tanzania was 1.11 billion US dollars in 2022 up from 1.03 billion in 2021 equivalent to an 8 per cent increase.

The manufacturing, mining, and energy sectors are the primary recipients of FDI in Tanzania. Other sectors such as agriculture, tourism, and infrastructure have also been attracting FDI in recent years.

The country's primary investors are China, India, Kenya, the United Kingdom, Mauritius, Oman, the United Arab Emirates, Canada, the United States, the Netherlands, South Africa, and Germany.

Kenya

Foreign investments in Kenya remain relatively weak considering the size of its economy and its level of development. Nevertheless, Kenya is one of the largest recipients of FDI in Africa.

According to the figures from UNCTAD's 2022 World Investment Report, FDI flows to Kenya declined to USD 448 million in 2021 (compared to USD 717 million one year earlier), their lowest level in the last five years.

According to the latest Foreign Investment Survey published by the National Bank of Kenya, the main investors in the country are the United Kingdom (13.5 per cent), Mauritius (11 per cent), the U.S. (10.3 per cent), South Africa (9.8 per cent), and France (5.2 per cent).

Rwanda

Although FDI stocks have increased in recent years due to Rwanda's political stability and measures focused on improving the business climate, FDI flows remain rather weak.

According to UNCTAD 2023 World Investment Report, inflows fell from USD 274 million in 2020 to USD 212 million in 2021, following the global economic crisis triggered by the Covid-19 pandemic.

The government of Rwanda is seeking to attract more FDI and, in 2015, it approved a new Investment Code aimed at providing tax breaks and other incentives to investors.

South Sudan

UNCTAD's 2023 World Investment Report shows FDI inflows rose from 67.5 million US dollars in 2021 to 121.5 million US dollars in 2022.

The inflows to the country had increased from a negative value of -232 million US dollars in 2019 to 17.5 million US dollars in 2020.

Most FDI in South Sudan is concentrated in the oil and gas sector.

Other sectors that have attracted some investment include agriculture, mining, and infrastructure development.

China, Malaysia, India, and Uganda are among the top countries investing in South Sudan.

Burundi

Burundi has the lowest FDI inflows in the EAC region from 2016. Last year, Burundi attracted 12.88 million US dollars in FDI, a slight rise from the 9.93 million US dollars recorded in 2021.

According to UNCTAD, the agriculture sector attracted 60 per cent of the total FDI stock in Burundi, while the mining sector received 16 per cent and the services sector 12 per cent.

The main countries investing in Burundi are Belgium (mainly in the mining sector), France (agriculture, energy, and telecommunications sectors), and China (construction of infrastructure).

It is expected that FDI inflows in Burundi will be boosted by the ongoing structural reforms, an opening up of the economy to private investment and the country's integration into the East African Community (EAC).

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