Amid a continent-wide backdrop of sluggish growth and a stunted commodities sector, investors embarked on 676 new projects last year, overseeing a 31.9% rise in capital investment but a 13.1% decline in job creation, according to EY’s Africa Attractiveness Report. That increase in investment was largely driven by capital-intensive projects in the real estate, hospitality, construction, transport and logistics sectors.
The surge contributed to overall investment in projects averaging $139m in 2016 compared to $92.5m the previous year. Yet the disappointing job creation figures will make troubling reading for policymakers concerned with the phenomenon of jobless growth, which has dogged commodity-dependent African economies from Nigeria to South Africa.
The uneven picture for the continent as a whole was replicated on a regional basis. In West Africa, Cote D’Ivoire cemented its reputation as a rising star by recording a 21.4% increase in projects, yet neighbouring Ghana, which in 2016 elected the government of Nana Akufo-Addo in a bid to tackle a protracted economic crisis, saw its projects decline by 31.7%.
Nevertheless, EY placed the country fourth in its Africa Attractiveness Index, a ranking of 46 African economies, citing an improving macroeconomic environment and strong governance track record. Keen watchers of sub-Saharan Africa may be surprised to find South Africa placed third in the index, given a torrid year of political turmoil and sluggish economic growth which culminated in the April firing of finance minister Pravin Gordhan and downgrade to junk status by Fitch and S&P.
Yet few would argue that first-ranked Morrocco and second-placed Kenya stand well-placed to capitalise on investment flows, particularly if the latter enjoys a peaceful general election in August.
FDI flows – which EY defines as new greenfield and brownfield FDI projects but excludes loans and aid – into Africa were mainly driven by the Asia-Pacific region, with China the third-biggest African investor with a 106% jump in projects amounting to $36.1bn, while Japan increased its projects by 125% valued at $3.1bn. Western nations continue to be the primary source of project finance, with the United States launching some 91 projects worth $3.6bn, while second-placed France invested $2.1bn in 81 projects. Meanwhile, the United Kingdom invested in 41 projects, some 36 fewer than 2015, valued at $2.4bn.
Commenting on the report, Ajen Sita, Africa chief executive at EY, said that Africa’s mixed performance reflected a difficult international environment as much as domestic factors. “This somewhat mixed picture is not surprising to us. Investor sentiment toward Africa is likely to remain somewhat softer over the next few years,” Sita said. “This has far less to do with Africa’s fundamentals than it does with a world characterised by heightened geopolitical uncertainty and greater risk aversion. Investors with an existing presence in Africa remain positive about the continent’s longer-term investment attractiveness, but they are also cautious and discerning.”
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