COVID-19 slashes foreign direct investment in Africa by 16%

East Africa

FDI to East Africa dropped to US$6.5 billion, a 16% decline from 2019. Ethiopia, despite registering a 6% reduction in inflows to US$2.4 billion, accounted for more than one third of foreign investment to East Africa.

Investment in SDGs also fell except in renewable energy

Foreign investment in Africa directed towards sectors related to the Sustainable Development Goals (SDGs) fell considerably in nearly all sectors in 2020. Renewable energy was an outlier, with international project finance deals increasing by 28% to US$11 billion, from US$9.1 billion in 2019.

Outflows also declined

FDI outflows from Africa fell by two thirds in 2020 to US$1.6 billion, from US$4.9 billion in 2019. The highest outflows were from Togo (US$931 million). Investment from that country was largely directed to other African countries. Outflows from Ghana (US$542 million) and Morocco (US$492 million) were also significant, although they dropped by 8% and 45% respectively compared with 2019.

Looking ahead

Although UNCTAD forecasts FDI in Africa to grow in 2021, a tepid economic recovery and slow vaccine roll-out programme threaten the scale of the investment recovery. FDI to the continent is projected to grow by only 5% in 2021, lower than both the global and developing country projected growth rates.

Some mitigating factors even as headwinds persist

“Despite projections for only a weak investment recovery in 2021, there are some mitigating factors that signal FDI picking up momentum by 2022 and returning to pre-pandemic levels,”  Zhan said.

First, an expected rise in demand for commodities, especially in the energy sector as the global economy picks up steam in the second half of 2021, will result in higher resource-seeking investment.

Second, the reconfiguration of global value chains (GVCs) and the increasing importance of regional value chains (RVCs) will open new opportunities for African countries.

Third, the implementation of some key projects announced in 2021 and earlier, including those that were delayed due to the pandemic, may support FDI.

Finally, the impending finalization of the African Continental Free Trade Area (AfCFTA) agreement’s Sustainable Investment Protocol could give impetus to intra-continental investment.-UNCTAD

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